MLM Compensation Plan Design

Len Clements:

Compensation plan design goes way beyond just picking how many levels you’re going to pay and how to divvy up the percentages. In fact, compensation theory as it relates to MLM is an evolving, every expanding goulash of mathematical, psychological, artistic, and historical factors. Even most professional compensation plan designers have taken little time to study and understand all this (there are a few rare exceptions), let alone those independent distributors who are, for the most part and in large part, basing their MLM careers on the quality of their chosen compensation system (yes, the quality of one’s products should be the dominant decision making factor, and there is certainly a trend over the last few years in that direction, but alas, that’s still the way it should be, not the way it is). The vast majority of MLM compensation plans
today are an ill-conceived hodge-podge of bits and pieces of other pay plans that the designers, usually the company founders, just thought were cool. Little, if any, regard is given to how the components work together synergistically, what they are suppose to incentivize, how appropriate they are for the types of products being offered, how well they’ve worked in the past, and in way too many cases what it will cause the plan to pay out now, and in the future. Many pay plans today were developed with little more study than who’s hot, what kind of plan are they using, and how can we make it just different enough to not look like we copied them?