One of the most difficult aspects of designing a new compensation plan is to ensure that your leadership does not lose money or see a reduction in overriding commissions when they promote a member in their team. In my experience, this is a fatal flaw in most compensation plans. The leadership bonus is the most powerful way to ensure that you avoid this problem.
The leadership bonus is based on paying the leader a sum equal to a percentage of the income of their personally recruited members. It can be based on one or more of the commission mechanisms and can also vary in percentage as the leader rises in rank. The easiest way to explain this is with an example. Please note that the example below is limited to keep the explanation simple. In the real world, this can be a lot more granular.
1. We will base all leadership calculations on level-based commissions only
2. Percentages will rise as the leader achieves higher ranks
3. We will use just 3 ranks - Team Leader, Silver Team Leader, Gold Team Leader
4. Team Leader will receive a 25% leadership bonus; Silver Team Leader will receive a 50% leadership bonus; and Gold Team Leader will receive a 100% leadership bonus
5. Team Leader will have 10 active members
Let’s say that Mary is a Team Leader and she has 10 personally recruited people. If each of these 10 people earn $100 in level-based commission, Mary would earn $100 x 10 = $1000 x 25% = $250.
If Mary gets promoted to Silver Team Leader, her leadership bonus will increase to 50%. She would now earn $100 x $10 = $1000 x 50% = $500. And if she gets promoted to Gold Team Leader, she would earn $1000. Earning more based on your personal rise through the ranks is standard and all compensation plans promise this. Where things get sticky, however, is when Mary’s team start moving up in the ranks. In most compensation plans this has a negative effect, as the commission earned by the downline is harvested from the upline's commission. With a leadership bonus, this is not the case.
If Mary helps her members get promoted, they automatically qualify for additional levels. Their income therefore increases and, because the matching bonus is based on a percentage of the downline's income, Mary’s income automatically increases.
As a Gold Team Leader in this example plan, Mary gets a 100% leadership bonus. If she helps her team get promoted and thereby increases their income, her income will go up. So, what do you think she will be motivated to do? You got it - she will help her 10 people to make sales, recruit members, get promoted and earn as much as possible.
If Mary wants to earn $10,000 per month all she has to do is help 10 people earn $1000 per month. Alternately, she could help 20 people earn $500 per month.
And if she wants to earn $100,000 per month…
The best part of the leadership bonus is the story and the story is: “If you want to earn $1000 per month, all you need to do is help 10 people earn $100." What a story!
This is an extremely powerful mechanism but you need to get the math right if you don’t want to go bankrupt. Again, I highly recommend that you get professional help when it comes to designing your compensation plan.