Evaluating compensation systems for a Multi-Level (MLM)

When evaluating compensation systems for a Multi-Level (MLM) and/or Network Marketing organization you should research the following issues:

• Is the compensation system reliable (how long has the system existed—how many millions/billions of dollars have been paid using this system?
• Is the system flexible (can the compensation plan be modified quickly without significant coding)?
• Can the system properly reward multiple groups (personal producers/writing agents, team builders/override commissions, new associates with small teams, experienced leaders/builders with massive teams)?
• Is the system web-based (can you access/edit the data from any device with Internet connectivity)?
• Is the system secure (will your data be properly protected)?
• Is the commission statement clear and easy to understand?
• Are the executive reports accurate, fast, and reliable?

Let’s answer each of the above questions point by point:

• Is the compensation system reliable (how long has the system existed—how many millions/billions of dollars have been paid using this system?

  Fining a company who has successfully built and managed compensation systems over a period of many years is critical. Perhaps even more important is the number of people that have been paid and the amount of commissions that have been calculated. The best companies have been around for many years and have successfully paid hundreds of thousands of agents billions of dollars.

• Is the system flexible (can the compensation plan be modified quickly without significant coding)?

  You want a compensation system that can pay your compensation plan—not just select from a list of generic options. Look for a “rules based” system that can be changed quickly and without coding by the software developers. The most successful systems allow agents to be paid for goods and services sold as a level, generational, and pool payment.
  
  
  • Level Payments (personal business).  Levels allow you to create one or many (15+) levels that distinguish your best performers from your newest agents. Each level may be assigned a different compensation payout for the goods and services paid. For example, a new “Jr Associate” level may earn a 50% commission on products and services sold. A more experienced salesperson might be paid at the “Sales Director” level at 80% commission for personal sales.
    
    
  • Level Payments (override commissions). If there is a broker/agent type of relationship between salespeople, it is necessary to pay the “broker” a percent of the commission earned by an agent that actually made the sale—this is called an “override commission”. To earn an override commission, the broker must typically be at a level higher than the writing agent. For example, assume that a new “Jr Associate” with a 50% contract made her first sale. This Jr Associate may have been trained and supervised by a “Sales Director” at an 80% contract. The Sales director would be paid 30% (80% Sales Director contract minus 50% Jr Associate Contract). This 30% payment for supervision and training is known in the industry as the “spread”. This spread disappears when the Jr Associate is promoted to a Sales Director level and the original supervising Sales Director would no longer earn a level/override commission on the sales of this “downline’ agent.
    
    
  • Generations.  Generations are the way that supervising agents who have trained a downline agent continue to earn a commission even after the agents they trained/supervised are promoted to the same or even higher level. Example, assume that Betsy, a Sales Director, trains and supervises Kevin, a Jr Associate. On sales written by Kevin, Betsy earns an override commission which is the spread between her contract level (80%) and Kevin’s contract level (50%). Kevin is a hard worker and is eventually promoted to the Sales Director level. Any future business written by Kevin at the Sales Director level would not create an override payment to Betsy because they are both at an 80% contract. With a compensation system that allows for the payment of generations, in addition to levels, Betsy would continue to be paid.
    
    After reaching a supervisory level, an agent can qualify for generational commissions. This is a critical feature because it gives Betsy an incentive to continue to train and supervise Kevin. For example, in a traditional real estate broker-agent relationship, the broker has no incentive to promote a real estate agent to the broker position because the broker would cease to earn commissions on the sale of homes by the agent. If the agent hopes to become a broker, he or she would need to leave and join a new agency looking for a broker. With generational payments, the broker continues to be paid on commissions earned by an agent promoted to the same broker contract. These payments are referred to as generational payments because they apply for multiple generations.
    
    Assume Betsy trains Kevin and Kevin trains Lisa. When Kevin reaches a supervisory level, he is a first generation to Betsy. When Lisa reaches a supervisory level, she is first generation to Kevin and second generation to Betsy. If Lisa makes a sale, Kevin earns a first-generation override and Betsy earns a second-generation override. Remember that neither Betsy or Kevin earns a “level commission” on a sale by Lisa because they are all the same level and there is no spread.
    
    
  • Pools. Pools are typically funded by a small commission off of every sale in the organization. There may be one or many pools. To earn a commission from a pool, an agent must qualify by meeting pool requirements. Pools are typically used to reward agents for outstanding behavior that may be tied to number of sales, quality of business, and training and compliance. Pools offer an organization tremendous flexibility to reward peak performers.

• Can the system properly reward multiple groups (personal producers/writing agents, team builders/override commissions, new associates with small teams, experienced leaders/builders with massive teams)?

  Many compensation systems and plans do an adequate job of compensating a certain group of agents:

• New Agents
• Experienced Agents
• Top sellers
• Top recruiters
• Etc.

It is difficult to find a plan that can successfully reward the most senior builders/producers as well as the newest associate. By giving the flexibility to pay multiple levels, generations, and pools (see above), any group of agents can be properly rewarded for their efforts. Find a company that has worked with many different organizations so that you can receive advice on how to setup your comp plan to reward and recognize those team members important to your organization.

• Is the system web-based (can you access/edit the data from any device with Internet connectivity)?

  Today it is absolutely essential that you and your sales organization can access and enter critical data from any device anywhere you have Internet Connectivity. Make sure that every feature of the system is web-based.

• Is the system secure (will your data be properly protected)?

  If your system is web-based (and it should be), you must make sure that the system provider utilizes the best security to protect your team data. Look for providers that host their system with the Amazon or Microsoft Cloud. Only the industry leaders can afford the very best tools to protect your data. Amazon and Microsoft are among two of the very best cloud providers.

• Is the commission statement clear and easy to understand?

  If your sales team cannot see every commission transaction they will assume they were not correctly paid. Look for a commission system that provides charts and reports that have both summary and detailed commission data. This will save your organization hundreds of hours on the phone answering commission questions.

• Are the executive reports accurate, fast, and reliable?

  You can’t run an organization if you are blind to the details and trends. Look for a system that provides summary and detailed reports and charts to see agency and commission data on individuals and teams. Look for a reporting system that can summarize data as well as well as the ability to drill down the last detail. Get a demo to see their charting and reporting features.