As we talk with companies we’re often asked, “Is there a level playing field for all types of compensation plans?” The answer is always, “The same legal principles apply no matter what your compensation plan is, and no matter what your product is,” regardless of whether they are binary, matrix or the Australian 2-Up, and regardless of whether your products are financial services, educational products, health products, or vitamins. The basic legal principal question always asked is, “What is it that people are paying?” and “Why are they paying it?” If you are selling a quality product at a fair price to the consumer, and the product “gets used”,  then you are probably on the legitimate side. If it’s a program in which you are merely moving money or you are selling overpriced products to distributors who are buying only to qualify, then you probably have a pyramid scheme.

However, state agencies and the Federal Trade Commission (FTC) look at both compensation plans and products in various spectrums. Although the same rules apply, their enforcement may be different and the “live and let live” rules may be different. Consider a spectrum on which there are compensation plans. A pure party plan that is retail-oriented is at one end of the spectrum. As we move across the spectrum, binary plans, particularly binary plans that have people buying multiple business centers, moves to the far end of the spectrum towards pyramid characterization. Similarly, companies that are marketing different types of products are looked at differently in terms of “live and let live.” At the conservative end of the spectrum, products that are intended for daily household use, telecom products, dietary supplements, and vitamins, even if there is substantial personal use, don’t attract as much attention from state and federal agencies because regulators understand that the product is being used and there is little to lose. At the other end of the spectrum, one that involves intense scrutiny, are products that are high-ticket items, such as financial seminars, financial education programs, consumer benefit programs, and particularly, products and services that are intangible or “air”, such as webhosting, online information, etc. States look at these products and ask “Who is buying it and why?” With these types of products, states and federal agencies are definitely looking for more retail sales to the ultimate consumer.

For more information on compensation plans, read the following articles:

How to Analyze Compensation Plans

Is the Compensation Plan the Driving Force for Success in a Direct Selling, Network Marketing, MLM Company?

MLM Compensation Plans – What you should know

Watch these videos on compensation plans:

Is the Compensation Plan the Driving Force of Success?

Role of Compensation Plan in a Successful Direct Selling Company

And, for more information on the direct selling industry, visit www.mlmlegal.com and www.mlmattorney.com.

Leave a Reply