Compensation Plans: The Untold Secrets

Feb 9, 2022Sheffield Blog

Many people misunderstand the role of the compensation plan in the direct selling business. While it is important, it is not as critical as your product or service, nor your management team and company culture. The compensation plan is important because it drives distributor behavior, and that in turn is the engine of sales.  

Let’s take a quick look at some of the untold secrets behind creating a successful compensation plan:

All forms of compensation

Be sure to account for all forms of compensation beyond commissions and bonuses. These should include awards and incentives and may also involve some form of profit sharing, such as in a company-wide pool. Recruits will be more committed to your company when they have the opportunity for personal recognition, and when they also benefit from the total success of the enterprise.

Early payouts

Create early payout of initial commissions and bonuses through weekly or bi-weekly distributions to keep enthusiasm and excitement going amongst your distributors.

Start carefully

It’s easy for your team members to accept more compensation, but it’s difficult to take compensation away. When you begin, be sure to design your compensation plan competitively but fairly to ensure the success of your business now and into the future.

Minimum and plus plans

MLM plans should mandate minimum distributor personal retail sales while rewarding for building an organization in depth. For plus plans, all earned bonus levels are in addition to those previously earned, never in place of them. The principle here is: don’t penalize your distributors for growth that happens lower down in their organization. A “Plus” plan means that there are no sponsor disincentives created by lost or reduced centers of profit. As the downline advances, that might encourage leaders to suppress downline advancement. All earned bonus levels are in addition to those previously earned, never in place of them.

Don’t forget AIRE

AIRE stands for Awards, Incentives, Recognition, and Events. These options are often overlooked but are an integral part of the compensation plan’s effectiveness. They play a significant role in bonding your distributors to the company and its mission. An effective AIRE plan incurs some cost, and this needs to be priced into the compensation strategy.

The best should make the most

Your plan should be “capitalistic” in its design and reward the business builders who contribute consistently to the company growth. Conversely, beware of plans that are “socialistic” in design, dividing available profits among many and encouraging a something-for-nothing philosophy. A good plan provides bonuses balanced between the beginning MLMer who is just trying it on for size, the committed part-time business builder who is building an organization through multiple levels, and the highly-driven leader who should benefit from sales generated by a significant downline community.

Keep it legal

Your compensation plan should reward early to help maintain new distributor enthusiasm and be reasonably aggressive in order to be competitive. However, it must be legally defensible, which means that you are careful not to compel your distributors to purchase excessive inventory. Distributor monthly maintenance qualifications to receive downline organization bonuses should be reasonable and achievable for the consistent part-timer as well as the dedicated full-time participant. A lack of balance will result from extreme variations in incentives, with too many or too at different levels of rank accomplishment.

Autoship, sales organizations, rank/titles, and levels

The program should incorporate auto-ship ordering programs with a bonus volume relationship to monthly distributor qualifications. The plan should mandate distributor minimum personal retail sales while rewarding for building an organization in depth. Distributor ranks and titles should be permanent once received, but distributor bonuses should be “paid-as” the position for which they actually qualify during the pay period. Compression of levels or generations should occur to properly reward performers through maximum depth of income stream.

Is this an exhaustive list of all of the untold secrets in developing and implementing compensation plans? Unfortunately not! A great plan is precisely attuned to your specific business plan, product range, and target market. That’s why there are no cookie-cutter solutions. 

Learn more at Sheffield Global Academy, the only online course for founders and executives of direct selling companies. Or call for a free consultation: 480-968-6199