All multilevel compensation plans pay people many ways and most of these plans include one or more bonus pools.
Is it ever a good idea to only pay people through bonus pools?
Before I answer that question, let’s define what a bonus pool is and then examine the purpose of a bonus pool while discussing the pluses and minuses inherent to this type of compensation.
What Is A Bonus Pool?
A bonus pool is a pot of money usually defined as a percentage of revenue that is shared equally or unequally amongst qualified participants. The revenue may be defined as monthly company volume, quarterly company volume, fast start volume, first-order volume, or any other subset of company volume accumulated over a period of time.
The portions of the pool that are granted to participants are referred to as “shares.” Shares may be earned equally by all eligible participants or unequally based upon their paid-as ranks, organization volume, or other compensation plan achievements.
Purposes of Bonus Pools
Like all other forms of compensation, the purpose of a bonus pool is to motivate and reward one or more of the 12 compensation plan behaviors.
In addition, when shares are earned unequally based upon performance, bonus pools can motivate another behavior that is unique to all other bonus types, and that behavior is “competition.” Because participants share the money placed into a bonus pool, participants are incentivized to outperform other participants. The better your performance, the larger your portion of the pool.
Another purpose of a bonus pool is to give a select group of representatives a reason to help other representatives not in their organizations because the performance of each and every representative adds to the monthly company volume that funds the pool. We want company ambassadors and this is one good way to get them.
Pluses
Bonus pools are great from a financial budgeting standpoint because the company knows precisely what the bonus pool will cost the company. The total cost of the pool is known because it is funded with a specific percentage of volume. What matters financially is the total cost of the pool and that cost is known.
We want our top representatives to compete with each other and bonus pools are a great way to get them to do just that. We also want some representatives to become ambassadors of the company, as mentioned above. Two thumbs up.
Minuses
The amount one can earn in a bonus pool payment is inconsistent and unpredictable. It is inconsistent because how one performs one month is not directly correlated to the monthly sales of the company nor to how many other people will share in the funds placed into the pool. The lack of correlation can frustrate representatives if they are not taught that how they perform in a month is not directly tied to how much they will earn in a bonus pool.
I like to say bonus pools are like icing on a cake. They are good to have, they taste really good, but there should be much more cake on your plate than icing.
Now, let’s get back to that first question about whether it is ever a good idea to pay people only through bonus pools.
Should A Plan Ever Pay Everyone Only Through Bonus Pools?
The simple answer is no. A plan should never only pay people only through bonus pools. Simple answers are good, but you deserve to know more, so read onward.
People join multilevel marketing companies because they want to be fairly and predictably compensated for their efforts. As mentioned above, the income from bonus pools is unpredictable and inconsistent. We cannot motivate performance from people when all of the rewards are inconsistent and unpredictable.
When a representative generates twice as much organization volume this month as compared to last, he or she will expect his or her income to roughly double. If the only way you pay people is through pools, this will not happen. People will be discouraged because their income won’t grow proportionally to their personal and organizational results. When you pay people only through bonus pools, it will appear that compensation is disconnected from personal and organizational performance.
Bonus pools do not motivate and reward each of the 12 compensation plan behaviors. Your company and its salesforce will not prosper if some of these important behaviors are ignored.
What Percentage of Total Compensation Should Be Pool Based?
In most direct selling companies whose plan pays out 40-50% of sales in compensation, a total of less than 5% of sales is paid out through bonus pools. See what I mean about icing?
The highest percentage in a plan that pays in pools that I have ever seen is Xingular. They have 12 pools funded with 1% of sales each. Even at Xingular, the majority of their multilevel compensation is not paid out through bonus pools.
Bonus Pool Smart
Now you know more about bonus pools. A little goes a long way. Don’t fill the plate with icing. Better let them eat cake.
Jay Leisner, the President of Sylvina Consulting, is a top compensation plan and direct selling expert, a trusted adviser to new and established network marketing and party plan companies. For more than 30 years, Jay has enjoyed assessing and improving network marketing, party plan and referral marketing companies across the globe.
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