Compensation Plan

Eight Common Compensation Plan Design Mistakes

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Some mistakes are no big deal, but compensation plan mistakes can seriously wound your company.  In this video, I will share with you the most common mistakes, so that you can get to work to fix them.

If you’d like to know even more about compensation plans, I invite you to attend the next Direct Selling Edge Conference for new and young network marketing and party plan companies.  Go to for conference details.

Eight Common Compensation Plan Design Mistakes

  1. Too High Rank QualificationsAre the performance bars required to promote to higher titles too difficult to reach?  For example, if your goal is to have 50% or more of your independent distributors promote to the second title, you will want to align your compensation plan criteria for that rank so that a large percentage of all representatives will be able to meet the requirements.
  2. Too Low Rank QualificationsIt’s important to avoid creating a culture where mediocrity is rewarded.  If the requirements for title promotions are too easy, it will be more difficult to build and maintain a strong team of high performing representatives.
  3. Insufficient RecognitionRecognition is critically important.  Recognition is a vital component of the compensation strategies of all direct selling companies.  Occasionally, we will see a company whose compensation plans does not include titles.  Everyone is given the same title regardless of performane, such as “consultant.”  The payout plan is also the same for everyone, for example 6% of sales volume of 5 levels of their downline.  This compensation plan mistake presumes that recognition is not important.  In reality, without it, you can’t succeed.
  4. Overly Optimistic ExpectationsIt’s very good to be an optimist.   However, when it comes to your compensation plan and the performance of your sales force, it is so much better to be realistic.   For example, you will be very disappointed if you believe that everyone enrolled is going to enroll five others. You will also be setting very unrealistic expectations for your sales force, too.
  5. Insufficient Rewards To Recruit OthersThe growth of direct selling companies depends on recruiting and sales volume.  To get the volume of recruiting that you need to grow your company, your compensation plan must motivate and reward recruiting.  Some companies pay very small bonuses on the sales volume of personally enrolled representatives.  This is a serious mistake.  Consider this:  if you don’t reward recruiting sufficiently, the percentage of those who recruit will be low, but even worse, the percentage of those who recruit again will be even lower!  Make sure your compensation plan rewards the recruiting behavior and link all bonuses to sales volume!
  6. Insufficient Rewards To Teach OthersThe results of your recruiting efforts are directly linked to the rewards you have established for upline reps to teach new recruits.  Paying only a few levels of bonuses is insufficient to encourage and reward the team building and leadership development behaviors.
  7. Incomplete Plan DesignA compensation plan that is fully developed, rewards and motivates 12 distinct behaviors. A complete plan requires many pages to fully explain it.  While an incomplete plan is  better than no plan at all, to do the job well, your plan needs to be complete.
  8. Illegal CompensationOften times, a company with an illegal plan isn’t aware that they are breaking state and/or federal laws — until someone who knows tells them.  For example, if you require personal consumption of your products to be qualified to earn multilevel compensation, you have an illegal plan.  This is but one example of illegal compensation.  There are others.
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Just like other things in life, it’s easy to make mistakes.  Some kinds of mistakes have minor consequences.  Compensation plan mistakes can have significant impacts on your company’s growth and health.

For more information on compensation plans and other topics of interest to direct selling company executives and owners, visit

You may also like: Challenges of Onboarding New Representatives

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