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Structuring Compensation Plans for Direct Sellers

The reason why some Companies thrive and others fail miserably is the point from where they start. If you start from how much money you want to make you will not succeed. But if you start from how many people’s lives you can touch and improve you won’t have a safe big enough to store all the money.

Every Compensation Plan Design is a compromise between what the Company would like the sales force to do and what a volunteer sales force will actually do. It is important for the sales force to personally sell; to recruit, train and motivate others; to become leaders and progress through the various levels of the plan; and to support and follow company policies and guidelines.

Plans can be constructed to appear to have a huge payout, however they contain so many confusing or hidden “breakage traps” that make actual pay level achievement unlikely, it would make the plan unethical. An ethical comp plan is designed with an intent to pay as much to the field as the company can afford

Types of Plans

  • Stair step
  • Breakaways
  • Uni-level
  • Binary
  • Matrix
  • Australian Jump
  • Straight Line

The Key elements of a compensation plan are:

  • Commissions
  • Volume Bonus
  • Leadership Bonuses
  • Rank Advancement Bonuses
  • Over-writes
  • Pools
  • Among others.

However, there are other important elements within the business that will also determine its success:

  • Products
  • Recognition programs
  • Starter Kits
  • Fast Start programs
  • Travel incentives
  • Training
  • Monthly marketing Incentives
  • Communication Initiatives
  • Corporate Social Responsibility Initiatives
  • Social Networking
  • E-Commerce strategies

Compensation plans are Generally designed by “experts”. Entrepreneurs who put their heart and soul into developing a product cheerfully put themselves into the hands of the expert. And then they go off and run with it assuming that everything will work perfectly because it was designed by an expert. As a result, there is too often a lack of internal knowledge and ownership of how the plan works among senior management.

Common Mistakes Made by Start-Up Direct Sellers

  • There are very few actual experts in the field.
  • Plans are often copied from a previous employer or from a successful start-up.
  • That same plan may fail when implemented in another company.
  • There are a number of factors that influence which type of plan will work in any given situation.

Common Errors

  • Lack of Institutional Knowledge

      In some situations, there are only a few IT or field service people that fully understand the plan.

      This lack of understanding leaves the company vulnerable to unscrupulous field leaders that will improperly manipulate to their advantage more than their performance merits

      Or make improper and unsupportable earnings claims about the plan.

  • Lack of Understanding of the Direct Selling Association (DSA) Code of Ethics

      Buy back policy is critical. There is a requirement to for up to 12 months to repurchase inventory at 90% of the original purchase amount

      Best practice in party plan is to extend this privilege to the starter kit.

      Responsibility to have a code compliance officer who has significant authority within each member of the organization.

 

To summarize it can be said that Direct Selling is exciting and rapidly growing around the world. And structuring an effective compensation plan requires careful planning and guidance. It is important to take into account, that changing how your distributors are paid is a very important decision requiring expert counsel, especially if you have not been Multi Level in the past.

 

 

Based on the conference Structuring Compensation Plans for Direct Sellers by Dan Murphy, Selkirk & Sutherland Group, LLC at the DAS 2012 Global Regulatory Summit

 


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