How to Analyze Compensation Plans
FINDING THE RIGHT COMPANY
By Jeffrey A. Babener
Excerpted from Network Marketing: What You Should Know, Jeffrey Babener, Legaline Publications
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Four Major Types of Plans
There are many different varieties of compensation plans out there. They often have exotic names. But they tend to be variations on four major types of plans....
The Unilevel Plan
In this plan, recruits do not advance to positions above basic distributors, regardless of their performance. According to White, the principal advantage of the unilevel plan is that it's easy for companies to administer and for distributors to explain to potential recruits.
Its chief disadvantage is its lack of flexibility in achieving some of the goals mentioned earlier. In addition, unilevel plans are limited in depth of levels of payment which inhibits deep sales organizations. Instead, front line width occurs which may cause sponsors to be "thin" in support. Over time, most companies that start with unilevel plans adapt them to look more like a stairstep breakaway plan.
The Stairstep Breakaway Plan
This is the oldest and most common type of network marketing compensation plan. After meeting certain performance criteria, a distributor advances in rank and "breaks away" from his or her original sponsorship line. The original sponsor receives a percentage override on the sales of the entire breakaway organization. In a way, a stairstep breakaway plan is a unilevel plan with the flexibility to motivate distributors to perform and advance.
Its chief advantage, says White, is that it has a good track record, is easy to modify, is accepted by regulatory agencies, and is driven by volume and performance.
The primary disadvantage of this plan is that it is sometimes so complicated that it's difficult to explain to new recruits. Another disadvantage is that if the company does not monitor its distributors, they tend to get involved in inventory loading. And sometimes, there is an unreasonably high ongoing monthly personal purchase volume requirement.
Nevertheless, the stairstep breakaway plan remains the most tried-and-true type of plan out there today - and the most likely to survive in the decades to come.
The Matrix Plan
This plan looks like a grid in which a distributor is limited to a certain number of recruits at each level. For example, in a 3-by-5 matrix, each level down to five can have only three downline distributors.
This type of plan is sometimes considered to be more gimmicky than others. Why? Because due to the width limitations, new recruits may find themselves placed underneath upline distributors who did not directly recruit them. In a three-wide matrix, for instance, the fourth distributor you personally sponsor would be placed under one of the first three distributors you personally sponsored (your first-level distributors).
This automatic filling of spots in the matrix can be attractive to novice distributors if they sign on with strong leaders who help fill their grids. Also, it works well in companies where most of the products are used by the distributors, rather than sold to outside consumers.
Matrix plans have been subjected to attacks by regulatory agencies because they sometimes look like "a game." By and large, they have not had a successful record in the industry, and they foster nonproducers, which makes the upline distributors resentful. Nevertheless, several major companies operate matrix plans. Only time will tell whether these plans are here to stay.
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