At our Direct Selling Edge Conference this month, I was asked if simple compensation plans were safer.

Before giving my answer, I took a big breath and then gave myself a few moments for an additional pause.  This was an important question with an even more important two-part answer.

A Legal Perspective

Given the regulatory action against Vemma and Herbalife in the last few years, I understood why I was asked this question, so I responded first to this concern.

I explained that one of the objections raised by uninformed regulators and critics of direct selling has been the complexity of multilevel compensation plans.   Some of them believe incorrectly that a complex compensation plan is a symptom of a criminal enterprise.

This conclusion is as absurd as saying that suits are a marker for illegal activities because white-collar criminals wear them.

As long as your compensation plan in practice does not violate federal, state, and local laws, it can be as complex as is necessary.  Remember, the purpose of compensation plans is to motivate and reward the 12 essential behaviors we all want from a direct selling sales force.

If you own or are employed by a network marketing or party plan company, two of your primary goals should be to attract and retain your independent sales representatives.

Simple multilevel compensation plans don’t accomplish these goals.

To find out what’s wrong with simple compensation plans, watch my 5-minute video The Answer:  Why Simple Compensation Plans Don’t Work.

Can We Start With A Simple Compensation Plan?

Some companies think about starting with a simple compensation plan, with the idea to change their plan later.  This is not a good idea.  At a minimum, it will reduce your rate of growth significantly, but even worse it may be a cause of business failure.

Most companies cannot afford a “do-over.”  For financial reasons, they need to get it right the first time.

I don’t recommend that you begin your direct selling company with a simple compensation plan and then change your plan later.  Here’s why…

1. 50% of the people who consider joining your direct selling company will have had previous experiences as independent reps of other direct selling companies, and about half of them will want to see your compensation plan before joining.
2. For those who have been successful with other companies, when they see your plan is not a good one, they will decide not to join your company.
3. Also, if your compensation plan does not pay leaders well, they will decide not to join.
4. They won’t ask you to change your plan or tell you why they won’t be participating.  This will just pass on your opportunity and go somewhere else.
5. Do you want leaders to not join your company when your company is young?
6. Can your business afford to have them join other companies and not yours?
7. For those who do join your company and begin to build organizations, do you want them to leave (and to tell others to leave with them) when they realize the compensation plan will not pay them deeply enough?
8. Do you want people to be able to earn full-time incomes through your income opportunity?  With simple plans, it’s too hard or impossible.
9. Changing a compensation plan later can be difficult, but not impossible, to do.  Don’t launch your company with one plan that you know will be replaced soon.  Only change your compensation plan if you learn later that it’s necessary.

Why People Design Simple Compensation Plans

If you’re curious as to why people design simple compensation plans, read Why Do People Design Simple Compensation Plans?

Conclusion

Simple compensation plans are not safer for the survival of your business.  The word I would use to describe them is “unsafe.”

Free Compensation Plan Review

Find out if your compensation plan is in good shape, or if it needs to be improved.  Contact Sylvina Consulting for a free professional compensation plan review.