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You are here: Home / Compensation Plans / Why Compensation Plans Are Changing

Why Compensation Plans Are Changing

February 1, 2021 By admin Leave a Comment

As I have written for many years, a good compensation plan financially and ethically fits your business while motivating and rewarding very specific behaviors from your sales force.

In all, there are 12 essential compensation plan behaviors.

12 Compensation Plan Behaviors

These behaviors are…

  1. Personally purchasing your products or services.
  2. Selling to customers (non-participants of the income opportunity).
  3. Introducing the income opportunity to others (sponsoring/recruiting).
  4. Building a team.
  5. Training, supporting, and nurturing others.
  6. Becoming a leader.
  7. Personally developing leaders.
  8. Helping other leaders to develop leaders.
  9. Meeting or exceeding minimum activity requirements.
  10. Being promoted to a higher title or rank.
  11. Meeting or exceeding title maintenance requirements.
  12. Staying active and engaged in the business (retention).

Most people will tell you that behavior number three is the most important behavior to reward in a compensation plan because direct selling companies with multilevel compensation plans depend on recruiting for sales volume and growth.  Without recruiting, your company’s sales volume will grow at a slower rate.

For legal reasons, behavior number two is becoming more important than ever before.  Read onward to understand why.

The Power Of The FTC

In the Federal Trade Commission (FTC) cases against Vemma and Herbalife in 2015 and 2016, the FTC published guidance on the need for sales to “real” customers (defined by the FTC as sales made to people who are not also representatives of a company), and the decision by Advocare to remove multilevel compensation from its business model were warning shots that led to compensation plan changes for some companies within the direct selling channel.

Why did this only affect some companies?  Because not every direct selling company with a multilevel compensation plan has viewed the FTC’s telegraphed moves against select targets as dangerous or applicable to them.

After all, say most companies, the FTC does not have the power to make laws applicable to all companies, which is true.  The FTC can initiate legal action against only a limited number of companies each year.  So, if you play the odds, then “you’re safe.”

Well, yes and no.  What many companies don’t understand is that state attorneys general and courts use past cases as precedence in their decisions to pursue legal actions, so while the FTC’s gun is loaded with only a few bullets per se, the FTC indirectly inflicts future collateral damage to other companies.

The Vemma and Herbalife penalties, which were imposed upon two companies, were not laws that apply to every company.  Instead, each was a set of punishments upon one company that a judge imposed in response to the petition from the FTC.  Each ruling is case law which means it is precedential.  Judges often consider case law when making rulings.

The Federal Trade Commission and other courts look at recent cases as precedents, which means in future cases, other judges may say, for example, “Well, the Vemma judge said this so I’m going to say that, too.”

If you are an owner or an executive for a network marketing company, you can either do nothing and hope the FTC doesn’t bother you, or you can take preemptive action to increase the percentage of your sales that are made to non-participants in your compensation plan.

What can be your preemptive actions?

Preemptive Action Decisions

  1. Decide that you are not going to encourage people to join your company as independent representatives just for product discounts. Make the product price the same whether one is a representative or not and charge an enrollment fee high enough so that people will pay the enrollment fee to be a representative only if they are interested in the income opportunity.  For those who want to pay the lowest price but are not interested in the income opportunity, charge a one-time fee to become a VIP Customer which will grant you representative prices.
  2. Sell products that people will buy even if they’re not earning any money.  What does that mean?  That means, make your products and services attractive and valuable to customers.  You can’t have customers who are not independent representatives, too, if these kinds of customers don’t want your products or don’t want them at the prices you charge for them.
  3. Charge customers a fair price that is either the same price as your representatives or a higher price within reason.
  4. Use “sticks” and/or “carrots” to increase customer sales.

A stick is a requirement.  For example, to qualify for compensation you must have three customers.  If you don’t have three customers, you don’t qualify.  That’s a stick.  That says, you must have them or we’re not going to pay you.

A carrot is, for example, if you have enough volume between you and your customers, we will pay you this extra bonus.  We will make it attractive for you to have customers.  For example, you could create a revenue pool funded with a percentage of customer orders and share this pool amongst qualified representatives.

You get to decide if and how you will encourage customer sales.  You can either take preemptive actions, or you can put your head in the sand and pretend it’s 2012.

You have a choice as a direct selling company in how you behave in light of the Vemma and Herbalife cases and your decisions will impact the design of your multilevel compensation plan.

What Matters Most

What matters most are not the methods you employ to get more sales volume from “real” customers.  Instead, what matters most are the results.

What are the actions you will take to get at least 51% of your company’s sales volume from sales to customers who are not representatives of your company?

Sticks or carrots or both?

To learn more about compensation plan design, register to attend the Direct Selling Edge Conference webinar on Feb 16-17-23-24.

For help with the design or improvement of your compensation plan, contact Jay at Sylvina Consulting at +1 503 244 8787.

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Filed Under: Compensation Plans

About Jay Leisner

P15Jay 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 party plan and network marketing companies across the globe.

Direct Selling Startup GuideJay Leisner and Victoria Dohr authored the top-rated book for new and young network marketing and party plan companies, "Start Here: The Guide to Building and Growing Your Direct Selling Company".

Available in English and Spanish. This startup guide contains 250 pages of wisdom that will guide you through the right steps to start and continue on your journey to build a successful direct selling company.

You will save thousands of dollars and hundreds of hours of your time using the information you will read in our book.

Direct Selling Edge ConferenceSylvina Consulting and Thompson Burton sponsor the pure education "Direct Selling Edge Conference Webinar" for new and young direct selling companies. The wisest direct selling executives never stop being students. They seek out opportunities to learn more. They understand that the long-term success of their companies depends on how much they know, so they make efforts to keep learning.

Broadcast live and with recordings included for later viewing, this powerful webinar will give you buckets of wisdom and guidance to help you on your journey.

In 1986, Jay began his career in direct selling by working for a major direct selling software provider. First as a software developer and later as a project leader and a business analyst, Jay worked closely with new and established network marketing and party direct selling companies to provide them with software solutions to meet their unique requirements.

Jay contributed in many ways to the success of large implementation projects for many companies. Jay also worked with dozens of smaller companies to assist each of them in various capacities to provide them with the systems they needed to help their businesses to grow faster.

Along the way while working with them, he learned the secrets of successful direct selling companies and the challenges faced by them. In true entrepreneurial spirit, Jay’s decision in 1999 to start Sylvina Consulting as a direct selling consulting company was driven by what he saw was a need for answers, advice, and solutions.

In 2004, 2006, 2009, 2014, and 2018, Jay gave presentations on compensation plans, recognition, and field leadership development at conferences held by the US Direct Selling Association.

He traveled to South Africa in 2015, 2016, and 2017 to conduct workshops on compensation plan design and recognition programs for member companies of the South African Direct Selling Association.

In 2017, Jay spoke at the Canadian Direct Sellers Association Meeting on the importance of recognition.

More than just a compensation plan expert, Jay is exceptionally skilled at advising new and established companies on business strategies. Before offering advice or solutions, he asks important questions to understand each client’s specific concerns and goals.

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