Most people think that an MLM’s compliance department exists primarily to keep a company from getting in trouble with the FTC and other agencies and to make sure its distributors follow its rules. This is only partly true; the other major purpose for a compliance department is to keep peace between its distributors—when they start battling the company or each other, it can mark the beginning of the end for even the best company. When setting up a compliance department and the policies it will enforce, a company needs to remember the old saying, “Above else, do no harm.”
This article discusses the two most common company policies that create problems among distributors.
Allowing the transferring of sponsors
In some companies, it is possible for a distributor to decide they want to move their distributorship under a different sponsor. In my experience, it is always a bad idea to allow this. Sometimes a company will say, “If your sponsor doesn’t support you, you can move”. But how do you decide if they supported their downline? And once someone requests to move and his or her sponsor opposes it, no matter what the company decides, someone is mad.
The real problem comes down to this: If a company allows transferring downlines for any reason, there will be distributors who decide it is easier to build their downline by convincing people to move from other downlines than to sponsor their own new distributors.
Commission plan requirements
A commission plan can have the unintended effect of pitting distributors against each other. For example, imagine a plan the requires a distributor to have three first-level Poohbahs in order to become a Senior Poohbah, three Senior Poohbahs to be a Master Poohbah, and so on. Bill is trying to achieve the rank of Master Poohbah, and he sponsored Mary who is not a Poohbah, but has sponsored a Senior Poohbah. Bill has three possible courses of action and two of them are not good for Mary:
- Help Mary become a Senior.
- Try to get Mary terminated.
- In some companies Bill can buy out Mary’s distributorship.
One way companies can avoid pitting distributors against each other in this way is by using basing advancement requirements on the number of qualified seniors within a downline leg.
I have given you only a couple of ways in which the company rules can make the job of a compliance department much harder. There are many others. In my experience, the policies and procedures of a company sometimes get the least amount of thought, but can have the greatest amount of impact on how smoothly your company runs.
Mark Rawlins is the President of InfoTrax Systems. InfoTrax was founded in 1998. Mark has worked in the commissioning and systems part of the network marketing industry for over 22 years.