Case Closed CD "The Whole Truth About Network Marketing"
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COMPENSATION PLAN DESIGN
When it comes to designing a compensation plan there is a very critical distinction that must be made. That is, the purpose of a compensation plan is not to compensate. A compensation plan should be designed to incentivize. And while there are a number of good, competent comp plan designers out there who understand this distinction, most clearly do not. For example, I recently reviewed a plan where the matching bonuses – where you earn a percentage of the commissions earned by all those you personally sponsor – were only available to those who reached the top three ranks in the pay plan. These were ranks that required very large organizations that less than 1% of their distributors would ever qualify for. Every aspect of a compensation plan should have an answer to this question: What actions or behaviors does this incentivize? Matching bonuses primarily incentivize the training and support of those who are personally sponsored. So, why would you design a plan to incentivize this behavior only among those who have already and most strongly exhibited this behavior? That is, only among those who clearly don't need such an incentive? Shouldn't every distributor be incentivized to support those they sponsor? In this example, the Matching bonus was simply used as a reward for having achieved a high rank in the plan, rather than as an incentive for the sponsor to help those they enroll achieve those high ranks.
There are various types of plans, such as the stair-step breakaway, unilevel, matrix, binary, Australian or 2-Up plans, and then there are hybrids, most commonly involving the binary and unilevel plans. There are also numerous sub-categories to each type of plan, and there are occasionally experimental plans which claim to create a whole new category. There are only two types of plans that I would never recommend to any client: The Aussie 2-Up, or any variation of it, is one. There's an article listed below this audio link that will explain why. I'll also never use my clients as guinea pigs. Your company, or more specifically your distributor's, should never be the Petri dish for anyone's experimental compensation plan. At times throughout MLM history there has been a need for new concepts in compensation and motivation, thus the invention of plans like the binary in 1989. But today, there simply is no need to experiment with anyone's business or livelihood. There are plans already in existence that are proven to be extremely effective.
Having said all that, the most important aspect of a compensation plan's design is not what type of plan is used, but how the plan is weighted. Is it front weighted, back weighted, or middle weighted. Where should your plan be weighted? Well, consider this: MarketWave has been conducting an ongoing survey with over 7,400 total responses so far, and one of the questions is, what is your primary income goal. In other words, as your income increases each month, at what amount would you first consider yourself successful. Eight percent say, a supplemental income of 200 to 300 per month. They might go on, of course, to make more, but that's their primary income goal. So, for these folks the optimum weighting might be more towards the front, where the payout is spread more thinly but to more people. Six percent answered $84,000 per month, which makes them a millionaire, which also means 6% probably misunderstood the question on the survey. But if not, then they should be involved in a very back weighted plan, where much larger incomes can be achieved by a few people in lieu of most making little or nothing. The large majority, 86%, claimed their primary goal was to earn enough to quit their job and comfortably live off their MLM income. They quantified this as between $6,000 and $10,000 per month. Therefore, a middle weighted compensation plan will best serve the agenda of the vast majority of your distributors. That is, a plan where if the weighting were charted out it would look more diamond shaped, with the bulk of the payout in the middle. In spite of this most plans today are designed to emphasize how quickly someone can get into profit, and what a great opportunity it offers to achieve wealth. In other words, their weighting is more like that of an hour glass – exactly the opposite of what most distributors are actually looking for. When ever you add weight to a section of a plan, you must remove weight from some other section. A plan simply can't be all things to all people.
Also, the type of plan that's used and the rules applied to it are dependent on, amongst other things, the type of product or service being offered. You can't simply take all the most attractive components of the currently hottest pay plans and slap them together. Compensation plan design is a sciences. Some might even call it an art. The components of a plan should be synergistically integrated and then fine tuned to create the right series of incentives all firing off at precisely the right time to propel the distributor forward.
I should also note here that no category of plan is any more legally vulnerable than any other. At certain times throughout MLM history certain plan types have been in favor with those looking to disguise their illegal pyramid as a legitimate MLM program. In the 1970s it was the matrix plan, thus a disproportionate number of "matrix schemes" were hit by legal authorities. In the 1990s binaries were the plan of choice among this unscrupulous group, so binary plans did suffer a guilt by association. However, there were several examples where temporary restraining orders were issues against such companies and after the smoke cleared, that is, after a judge agreed that all the requisite changes had been made, the TRO was lifted and these companies were allowed back in business – and they all still had binary compensation plans. In fact, no US based MLM company has ever come under legal scrutiny specifically due to the type of pay plan they used. Such legal actions are almost always due to the motive for buying the product. Check out the Legal Issues section above for more details on this issue.
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