The Golden Rule of Compensation Plan Design

K.I.S.S. (relatively speaking…)

After having worked with every type of compensation plan imaginable over the years, we’ve learned a few things along the way. We’ve seen many MLM companies make it big and even more go the way of the dodo bird. Granted, not every company that has a poor compensation fails… and likewise, not every company that has an awesome compensation plan succeeds. But there are a couple key factors to watch for when just starting out.

Designing your compensation with these concepts in mind will make your life much easier down the road and may just provide that critical difference in determining whether your startup company survives infancy and adolescence and becomes an industry success story or crashes and burns shortly after takeoff. This article isn’t designed to tell you what kind of compensation plan you should pursue, whether it’s a unilevel, binary, forced matrix, 2-Up or any of the dozens of hybrid combos out there. We’re not going to get into the argument of whether you should pay more commissions to the “little guys” or more commissions to the “leaders”. We’re not going to tell you how to apply your caps or how much you should be paying out on a monthly basis. Those are all topics for another day. Instead, we’re going to focus on something a bit more fundamental.

First and foremost, if you remember nothing else, when it comes to designing your compensation plan: remember K.I.S.S. (Keep It Simple Stupid). Leonardo da Vinci once said, “Simplicity is the ultimate sophistication.” We all know that compensation plans can be inherently complex “beasts” to begin with—but relatively speaking you don’t want to too far outside the box when it comes to comp plan complexity. The bottom line is that if your top leader can’t successfully explain your comp plan to your average prospect within five minutes on a napkin in some restaurant, you’re in for potential problems.

For those that believe they have the latest and greatest bonus enhancements to comp plans since sliced bread (or maybe binaries or infinity bonuses), here’s another interesting thing we discovered: leaders will need to buy off on your creation and be comfortable pitching it… or you are sunk. Years ago someone came to me with the most unique compensation plan which appeared totally groundbreaking. It had seemingly solved all the “industry problems” but it was so unique that nothing like it had ever been done before. It combined the best of binaries, unilevels, and Australian 2-Ups, while simultaneously eliminating their weaknesses, and put it all together in this monster hybrid plan that was truly mind blowing.

After spending thousands upon thousands of dollars to program this behemoth, it was finally pitched to an elite networker who was one of the Top-10 earners in the industry. The new comp plan would have easily allowed him to earn 2-3 times that of what he was currently earning with the same organizational structure and volume. It would have pushed him well into the stratosphere for earning potential, an impressive 7-figure income-per-month. After thoroughly reviewing it, he was definitely intrigued by the model but ultimately he dropped a bomb that shocked everyone. First, he said it was too complex and impossible to explain on a napkin. It would generate more questions than answers because it sounded too good to be true. Second, it was too new and untested and because it was unproven he said he would never touch it with a ten-foot pole. Our client was seriously disheartened that their genius plan was disrespected by one of the industry’s most successful leaders.

So this brings up a good point. We’ve spoken before about the dangers of the “tail-wag-the-dog” syndrome. However, if you don’t have buy-off from your top leaders or you haven’t even recruited them yet, it’s probably a good idea to play it safe with your comp plan design and stay conservative. You can always add or enhance extra bonuses down the road. Of course, the no-no’s of changing your MLM compensation plan too often or too drastically are hopefully apparent, but that’s a topic for another article.

In summary, a good plan is simple and doesn’t go way outside the “standard” box. Stick with what works and what’s been proven by the industry. Remember, many of the big boys have already learned from their mistakes and it’s perfectly okay to learn from other companies’ follies. Don’t be one of the very first ones to market with a new or complex type of plan unless you have deep pockets and lots of leaders who are excited to push it. Making the plan uniquely yours is recommended and tweaking the bonuses are fine but when it comes to choosing the standard comp plan structure you’ll go with, it’s wise to follow the old adage your elders may be fond of saying, “If it ain’t broke, don’t fix it!”

Let our team of compensation plan experts here at Xennsoft help you craft the perfect plan for your company.

2019-01-17T17:37:05+00:00February 12th, 2016|Categories: Compensation Plans|Tags: , |0 Comments

About the Author:

Eric Raymond
Eric is a corporate veteran and Project Management Professional in the MLM industry with over 16 years of experience managing and directing the technology teams, projects, and compensation plans of both startup and multi-million dollar companies.