There are many different varieties of compensation plans out there. They often have exotic names. But they tend to be variations on four major types of plans….
The Unilevel Plan
In this plan, recruits do not advance to positions above basic distributors, regardless of their performance. According to White, the principal advantage of the unilevel plan is that it’s easy for companies to administer and for distributors to explain to potential recruits.
Its chief disadvantage is its lack of flexibility in achieving some of the goals mentioned earlier. In addition, unilevel plans are limited in depth of levels of payment, which inhibits deep sales organizations. Instead, front line width occurs which may cause sponsors to be "thin" in support. Over time, most companies that start with unilevel plans adapt them to look more like a stairstep breakaway plan.
The Stairstep Breakaway Plan
This is the oldest and most common type of network marketing compensation plan. After meeting certain performance criteria, a distributor advances in rank and "breaks away" from his or her original sponsorship line. The original sponsor receives a percentage override on the sales of the entire breakaway organization. In a way, a stairstep breakaway plan is a unilevel plan with the flexibility to motivate distributors to perform and advance.
Its chief advantage, says White, is that it has a good track record, is easy to modify, is accepted by regulatory agencies, and is driven by volume and performance.
The primary disadvantage of this plan is that it is sometimes so complicated that it’s difficult to explain to new recruits. Another disadvantage is that if the company does not monitor its distributors, they tend to get involved in inventory loading. And sometimes, there is an unreasonably high ongoing monthly personal purchase volume requirement.
Nevertheless, the stairstep breakaway plan remains the most tried-and-true type of plan out there today — and the most likely to survive in the decades to come.
The Matrix Plan
This plan looks like a grid in which a distributor is limited to a certain number of recruits at each level. For example, in a 3-by-5 matrix, each level down to five can have only three downline distributors.
This type of plan is sometimes considered to be more gimmicky than others. Why? Because due to the width limitations, new recruits may find themselves placed underneath upline distributors who did not directly recruit them. In a three-wide matrix, for instance, the fourth distributor you personally sponsor would be placed under one of the first three distributors you personally sponsored (your first-level distributors).
This automatic filling of spots in the matrix can be attractive to novice distributors if they sign on with strong leaders who help fill their grids. Also, it works well in companies where most of the products are used by the distributors, rather than sold to outside consumers.
Matrix plans have been subjected to attacks by regulatory agencies because they sometimes look like "a game." By and large, they have not had a successful record in the industry, and they foster nonproducers, which makes the upline distributors resentful. Nevertheless, several major companies operate matrix plans. Only time will tell whether these plans are here to stay.
The binary plan is the newest on the scene. In a binary plan, a distributor is allowed to occupy one or more "business centers," each limited to two downline legs. Compensation is paid on group volume of the downline legs rather than a percentage of sales of multiple levels of distributors. In other words, payment is volume driven rather than level driven. Sales volume must be balanced in the two legs to be eligible for commissions, which are paid at designated points when target levels of group sales are achieved. The distributor may occupy multiple positions and may re-enter or loop below other two leg matrices in which he or she has been active. There is no depth limit on payment but each matrix has a finite amount that can be paid out, thus necessitating involvement in multiple two leg matrices. Payment in binaries is often on a weekly basis.
Proponents of binaries cite several advantages. First, they like the weekly payout. Since it is a series of two leg matrices, it is simple to explain. Group cooperation is promoted because payout is on group volume and requires balancing of volume in each leg to be eligible for payout. Some call it more democratic because of the limitation on payout in each matrix, the unlimited depth of payout, and the allowance of looping or re-entry.
On the other hand, the binary is the most controversial of plans. The binary had its unfortunate origins in the early 1990s in fraudulent gold coin programs, and its use later for other questionable products did not help. Those subsequent products were generally high-ticket one-time purchases such as consumer service or travel memberships, travel certificates or overpriced prepaid phone cards. By the end of the 1990s, and after many legal challenges, the binary was not in great favor, and only companies like USANA, that had applied the concept to consumables, seemed to be around.
Critics charged that the implementation of binary plans brought on legal and business problems. Companies and distributors tended to promote the plan rather than the product, creating accusations of a "money game." Often plans had a one-time sale requirement which created a something-for-nothing atmosphere and appearance of payment for headhunting recruitment. The multiple business center approach was often presented as a "purchase of a business center," an "investment," or a "front-load" of product. The ability to stack personal business centers also created the possibility of front-loading. The required balancing of sales volume between legs meant that hard work might yield no payoff and income would be forfeited, because personal production did not count if balanced sales volume did not occur. Finally, the multiple re-entry or looping created a "game-like" atmosphere in which an individual could end up in the downline of someone he or she had sponsored. For the distributor looking long term at a distributorship that might be sold, this "looping" also made it virtually impossible to place a value on a distributorship because no continuous downline genealogy could exist.