Rethinking the Modern Compensation Plan

This post summarizes key insights from “The Modern Compensation Plan” by Sarah Paulk, published in Direct Selling News on November 1, 2024. Paulk explores the evolving landscape of compensation in the direct selling industry, highlighting the need for companies to adapt to new economic realities and the expectations of today’s sellers.

The Pressure to Change

Financial pressures and shifting priorities are forcing direct selling companies to rethink their modern compensation strategies. Traditional models, which often rewarded those at the top of hierarchical structures regardless of their current contribution, are becoming unsustainable.

“This is a sensitive topic, but the real issue is that the compensation plan should be designed to pay more for the leaders who are engaged and less to the leaders who are disengaged,” says industry consultant Dan Jensen.

This quote underscores the growing importance of a “pay for performance” model, where rewards are directly linked to active contributions and sales generation. To stay competitive, companies need to embrace flexible solutions that can adapt to this evolving landscape.

“Direct selling companies face increasing pressure to adapt or add to their compensation plans to meet the evolving needs of the market, empower their distributors, and stay competitive. At Exigo, we believe one solution is to leverage software to manage and model any compensation plan scenario and analyze their impact before implementation. This helps companies to create adaptable, effective incentive structures that motivate distributors, drive sales and support long-term growth.” —Rodger Smith / President & CMO, Exigo

The “Pay for Performance” Era

The next generation of direct sellers values fairness, transparency, and, most importantly, a direct correlation between effort and reward.

“What we see in legacy compensation plans is that they are violating that pay-for-performance guiding principle,” said Brett Duncan of Strategic Choice Partners. “There are a number of people getting paid massive amounts of money who are simply not performing.”

This shift in mindset requires companies to move away from rewarding seniority or past achievements and focus on incentivizing current activity and results.

Simplifying and Streamlining

Modern compensation plans need to be easy to understand and transparent. Complex jargon and convoluted reward structures are a turn-off for today’s sellers.

“This next generation of sellers doesn’t want to do a lot of math,” says Heather Chastain, CEO of Bridgehead Collective. “Look for ways to streamline and simplify. It increases transparency, increases the ability to train effectively and attracts new people in a different way.”

Companies should prioritize clear communication and straightforward reward systems that are easily grasped by both new and experienced sellers.

Redefining Loyalty

The concept of brand loyalty is also changing. “The idea that any human on the planet would only use products from one single company is silly,” says Chastain.

Instead of enforcing exclusivity, companies should focus on building genuine relationships with their sellers and supporting their overall success. This approach can foster a deeper sense of loyalty and encourage retention.

Front-End Focus

With more options available than ever before, retaining new distributors is crucial. Companies and field leaders need to optimize their onboarding processes and ensure new recruits feel valued and rewarded from the start.

“Time is your top competitor! If it isn’t worth their time, they leave. If it IS worth their time, they stick,” says Jensen.

Targeted Acquisition

Finally, companies need to be strategic in their recruitment efforts. Clearly identifying the target audience and tailoring the modern compensation plan to their needs and preferences is essential for success. This may involve incorporating elements of affiliate marketing or creating a hybrid system that caters to different types of sellers.

“The direction of direct selling today is one of omnichannel marketing and extreme flexibility in compensation plans. We are seeing the proliferation of affiliate models and know that affiliate should not be a fork in your business road, but it can be a branch in your business tree. Exigo’s commission engine allows for variations by market, geography, or user type, allowing both business builders and influencers and consumers to all exist within a common ecosystem.” —Jack Farris / CSO, Exigo

In Conclusion

The direct selling industry is evolving, and compensation plans must evolve with it. By embracing a modern approach that prioritizes pay for performance, simplicity, transparency, and individual success, companies can attract and retain top talent while ensuring long-term sustainability, individual success, companies can attract and retain top talent while ensuring long-term sustainability.

See how Exigo can assist you in evolving your comp plan and commissions to compete and boost revenue. Get a demo today!