Multilevel compensation plans should motivate and reward 12 specific behaviors. One of these behaviors is becoming a leader.
To reward leadership, is it better to pay Group Bonuses upon the volume of the same people, or instead to pay additional compensation upon the volume of other people?
The short answer is “it depends.”
Understanding Group Volume Requirements
Many multilevel compensation plans include a group sales volume requirement.
Do you know why group volume is important? If not, read Should You Have A Group Volume Requirement?
This important post defines group volume and explains how group volume requirements can motivate different amounts of recruiting from group leaders. Recruiting is dependent on your definition of a group.
Three Kinds of Groups
Direct selling companies define groups in one of three ways:
- all downline representatives down to but excluding reps with a specific rank or paid-as rank equal to or above a specific rank and all of their downline reps, with or without temporary exceptions
- all of the reps in a specific number of levels, or qualified levels, of one’s downline
- one’s entire downline
More often than not, a rep is included as a member of his or her group in the compensation plans of network marketing and party plan companies.
When Can Group Bonuses Be Paid?
When group volume is defined using the first definition above, you have the option in your compensation plan to pay a group bonus upon the group volume of a leader.
However, when group volume is defined using the second or third definition, it isn’t feasible to pay group bonuses in your compensation plan because groups will overlap, and when they do, the total amount of group volume bonuses paid will be too large, and as a result, your direct selling company would pay out too much through its compensation plan.
When Should Group Bonuses Be Paid?
Usually, but not always, group leaders are paid group bonuses in addition to level-based compensation upon the volumes of the members of their groups.
Group bonuses should be paid through your compensation plan only when both of the following are true:
- Your definition of a group is the first definition above.
- At the time of promotion to the first group leader rank, the representative promoted is being paid something upon the volume of the majority of his or her downline representatives. In other words, there are (or will be) few representatives outside of their pay lines.
When Should Group Bonuses Not Be Paid?
Your compensation plan should not pay group bonuses when either of the following is true:
- Your definition of a group is the second or third definition above, or you have no definition of a group.
- At the time of promotion to the first group leader rank, there are (or will be) many representatives in the downline of the newly promoted group leader upon whom the newly promoted group leader has not yet been paid.
Each compensation plan design decision, including whether you should pay group bonuses or not, should be made with full consideration of factors relevant to your company.
For assistance in the design or improvement of your compensation plan, contact the compensation plan experts at Sylvina Consulting.