Compensation Plans in 10 Questions
The compensation plan is a strategically significant element of a direct selling business yet it remains as a mystery to many. While it can boost the business when designed and implemented well, it can also have disastrous impacts if this aspect of the operation is taken for granted.
In this article, we will briefly go over some of the most frequently asked questions:
1. What Is a Compensation Plan in Direct Selling?
It is a plan that shows how and by how much a company rewards its independent sales force for promoting and selling its goods and services to end-users.
2. Is There Only One Form of Compensation Plan?
There are various plan types; “stairstep-breakaway”, “unilevel” and “binary” being the most popular ones.
3. Is Any of These Plans Better Than the Others?
Every plan has its own pros and cons. One type of plan can definitely be more suitable for a company’s strategies and products. However, none of them is categorically superior to others.
4. What Does “Hybrid Plan” Mean?
A hybrid compensation plan is the one that brings two different plans together. While it might be rewarding a broader range of behaviors than an individual plan on the field, all hybrid plans bring the advantages and disadvantages of its components. A hybrid plan usually requires heavy training efforts due to its increased complexity.
5. Are There Other Names Being Used Instead of “Compensation Plan”?
While “compensation plan” is by far the most widely used name within the industry, some of the companies choose other names like “marketing plan”, “success plan” or “financial rewards plan”.
6. If a Compensation Plan Does Not Limit Depth, Is This a Sign of a Pyramid?
Not at all! There are numerous legitimate network marketing companies that use plans paying bonuses to unlimited depth.
7. From an Independent Direct Seller’s Perspective, Is it Always Good to Work with a Plan with Higher Commissions?
Obviously, a direct seller would want to make more money. However, the amount of pay out is only one of the aspects of a plan that should be evaluated. Few examples to other aspects are: Legality of it, its appeal to candidates that will come with various expectations, and the required activities to earn commissions.
8. Are Complex Plans Better Than Simple Ones?
These come with their own advantages and disadvantages. While a complex plan can be rewarding a wider array of activities and success levels, a simplistically designed one can be easier to learn and to explain to others. If structured well enough though, a simple plan can also be rewarding all field activities that a company wants. Likewise, a complex plan can also be learned well if it is supported by a sound training program.
9. Do Compensation Plans Reward Those Who Joined Earlier More?
This is an urban legend! A well designed compensation plan has no such “V.I.P rooms” for those who join earlier. If this was true, who would want to join a company later on?
10. Can A Company’s Compensation Plan Change in Time?
Regardless of how much thought was put into its initial design, after a while the plan may not be bringing in the expected results. At that point, certain modifications have to be implemented to improve the plan. This is a tricky task though, that must be done well and must also be communicated to the field well.