Review of Vemma’s revised compensation plan
Having only just resolved objections to Vemma automatically reclassifying affiliates as customers, now the company is again clashing with the FTC.
The latest dispute is over Vemma’s proposed compensation plan revision, which would govern it’s MLM income opportunity globally.
A copy of the proposed revision plan was included in a Vemma filing seeking a hearing on the dispute, so I figured we’d go over it and see what Vemma affiliates have in store for them.
In the conclusion I’ll also be going over the FTC’s objections and Vemma’s assertions about the plan, weighing in on whether or not they respectively have any merit.
In Vemma’s revised compensation plan, Personal Volume (PV) is defined as sales volume generated by recruited affiliate purchases and retail customer orders.
In order to qualify for commissions a Vemma affiliate must generate 50 PV a month. An affiliate must also recruit/obtain two affiliates or customers (one on either side of their binary team).
These recruited affiliates or acquired retail customers must maintain a minimum 25 PV over a rolling four-week period.
To maintain commission qualification, a Vemma affiliate must maintain a minimum 25 PV every four weeks. Platinum or higher ranked affiliates must maintain 50 PV.
The 51% Rule
Vemma affiliates ‘will only be paid on the volume … that is at least 51% customer volume’.
Vemma are enacting this as a sliding scale, paying out pro-rata commissions on total volume that does not meet the 51% rule.
For example, if you had $100 in organizational volume of which $51 came from (retail) customers and $49 came from affiliates, you would be paid on the entire $100.
However, if only $40 of your organizational volume came from (retail) customers and $60 came from affiliates, you would only be paid on $79 of your organizational volume.
The $79 amount in the example above is calculated by only paying out $39 of the affiliate volume and $40 of the retail volume.
The $21 in unpaid affiliate volume would be flushed for failing to comply with the 51% rule.
Vemma Affiliate Ranks
There are nineteen affiliate ranks within Vemma’s revised compensation plan.
Along with their respective qualification criteria, they are as follows:
- Bronze – generate at least 1 binary cycle over a four-week period
- Silver – generate at least 5 binary cycle over a four-week period
- Gold – generate at least 10 binary cycle over a four-week period
- Diamond – generate at least 20 binary cycle over a four-week period
- Star Diamond – generate at least 35 binary cycle over a four-week period
- Platinum – generate at least 50 binary cycle over a four-week period
- Star Platinum – generate at least 75 binary cycle over a four-week period
- Executive – generate at least 100 binary cycle over a four-week period
- Star Executive – generate at least 175 binary cycle over a four-week period
- Presidential – generate at least 250 binary cycle over a four-week period
- Star Presidential – generate at least 375 binary cycle over a four-week period
- Ambassador – generate at least 500 binary cycle over a four-week period
- Star Ambassador – generate at least 1000 binary cycle over a four-week period
- Royal Ambassador – generate at least 2000 binary cycle over a four-week period
- Star Royal Ambassador – generate at least 4000 binary cycle over a four-week period
- Pinnacle Leader – generate at least 6000 binary cycle over a four-week period
- Star Pinnacle – generate at least 10,000 binary cycle over a four-week period
- Royal Pinnacle – generate at least 15,000 binary cycle over a four-week period
- Legend – generate at least 20,000 binary cycle over a four-week period
Rank Achievement Bonus
Upon qualifying at the Silver or higher ranks for the first time for two consecutive four-week periods, the following Rank Achievement Bonuses are paid out:
- Silver – $100
- Gold – $250
- Diamond – $500
- Star Diamond – $625
- Platinum – $750
- Star Platinum $1000
- Executive – $1500
- Star Executive – $2000
Presidential or higher ranks also pay a bonus, however these ranks must be held for a minimum four consecutive four-week periods.
- Presidential $3000
- Star Presidential – $5000
- Ambassador – $10,000
- Star Ambassador – $15,000
- Royal Ambassador – $25,000
Note that Presidential or higher bonus qualification also requires at least one personally recruited Star Platinum ranked affiliate on both sides of their binary team be maintained.
Residual commissions in Vemma are paid out via a binary compensation structure.
A binary compensation structure places an affiliate at the top of a binary team, which is split into two sides (left and right):
Positions in the binary are filled via the acquisition of retail customers and direct and indirect recruitment of an affiliate downline.
Commissions are paid out as sales volume is generated on either side of the binary, which includes recruited affiliate purchases and sales to retail customers.
For very 180 points of sales volume matched with 360 points on the other side of the binary, a “cycle” is generated.
At the end of each week, Vemma affiliate are paid approximately $20 per cycle they generate.
Note that the $20 commission payout can vary slightly, as it is calculated based on ‘total sales divided by the amount of qualified cyclers‘ company-wide.
Additional Binary Positions
If a Vemma affiliate maxes out the binary cycle commissions for four consecutive weeks, they are given an additional binary position above their existing maxed out position.
This effectively permits an affiliate to double-dip on existing binary commissions earnt.
Note that each affiliate is capped at obtaining two additional binary positions in this manner.
Matching Binary Bonus
A Vemma affiliate can qualify for a first-level Matching Binary Bonus by personally recruiting or acquiring at least 4 affiliates or retail customers respectively.
One qualified, an affiliate earns a 10% matching bonus on binary commissions earned by personally recruited affiliates.
If an affiliate personally recruits or acquires at least 6 affiliates or retail customers respectively, they can also qualify for a second-tier Matching Binary Bonus.
This second-tier match pays an additional 10% on the binary earnings of level 2 recruited affiliates (affiliates recruited by personally recruited affiliates).
Note that affiliates who are not Platinum or higher ranked, are capped at earning $5000 in matching bonuses every four weeks.
Also note that if an affiliate is not qualified to receive the Matching Bonus, it is instead paid out to the first qualified upline affiliate.
An affiliate cannot receive a passed up first and second-tier commission from the same downline affiliate.
Balanced Team Bonus
The Balanced Team Bonus is made up of ‘approximately 3% of the sales generated from countries that participate in the Balanced Team Bonus‘.
The bonus is based on specific rank structures and points generated in an affiliate’s downline.
Unfortunately the documentation filed by Vemma has been stripped of its formatting, so the qualification criteria provided didn’t completely make sense to me.
I have however included what I was able to make out below:
- Bronze (have at least 500 points of sales volume on both sides of the binary) – up to $100 per share
- Silver (have a personally recruited Bronze and at least 500 points of sales volume on both sides of the binary ) – up to $200 per share
- Gold (have a personally recruited Silver and at least 500 points of sales volume on both sides of the binary) – up to $300 per share
- Diamond (have a personally recruited Gold and at least 500 points of sales volume on both sides of the binary) – up to $400 per share
Note that Executive or higher ranked affiliates are unable to earn the Balanced Team Bonus.
Following objections raised to Vemma’s wishing to continue to classify affiliates as retail customers, the FTC received Vemma’s revised compensation plan revision on October 7th.
On October 12th, the regulator wrote back with its continued objections:
While we acknowledge Vemma’s efforts to address some of the FTC’s concerns, we cannot approve the plan as written.
The revision does not address the structural problem described in our October 5 letter – the compensation plan provides no additional incentives for retail sales and will likely result in an endless chain of recruitment.
Most resulting purchases will be motivated by the business opportunity rather than personal consumption, in violation of the preliminary injunction.
This is a fundamental flaw in the plan that will require major changes to address.
Second, the revision does not address the FTC’s objection to Vemma’s interpretation of the “51% rule”.
Third, while the objectionable definition of “Customer” has been removed, the plan provides no alternative definition of “Customer” or “Affiliate”, which are essential terms for purposes of the operation of the “51% rule” and the compensation plan as a whole.
While Vemma may intend to define these terms in other documents, as noted in our October 5 letter it is difficult for the FTC to approve this document in isolation when there may be other materials that will greatly impact the compensation plan.
We encourage Vemma to present all materials that are essential to a complete understanding of the compensation plan, rather than presenting the plan in a piecemeal fashion.
Vemma replied a day later on October 13th:
(i) You assert that the revised plan provides “no additional incentive for retail sales and will likely result in an endless chain of recruitment”.
You do not, however, identify what specific part of the plan is objectionable or violates any part of the Court’s Order.
Your assertion is not supported by the language of the revised plan and the Court’s Order.
(ii) You assert that the “51% rule” states in the revised plan violates the Order.
Again, you do not identify what specific provisions of the rule violate the Court’s Order.
This assertion also is not supported by the language of the revised plan and the Court’s Order.
(iii) You state that the definitions of “Affiliate” and “Customer” need to be defined in the revised plan.
Vemma will add definitions to the plan, and will use the terms as defined in the Affiliate re-classification message which the FTC previously agreed to.
After some more back and forth, the FTC’s objections remained unresolved.
I personally have identified two issues with the proposed revision, which tie in to the FTC’s objections.
The first is pretty straight forward and pertains to commission qualification.
As per the current proposed compensation plan, to qualify for commissions at least two retail customers and/or recruited affiliates are required (can also be one of each).
Yet in order to remain “active” for commissions, the following criteria is provided:
As soon as you qualify your sales organization by enrolling at least one active Customer on each of your left and right team (active is defined as having an active 25 PV every month), you are then eligible to earn income.
PV as per the proposed compensation plan is defined as follows:
Volume that is assocated with 100% of the QV from your personally enrolled customer(s) or affiliate(s) purchases.
Where is the incentive to focus on retail over recruitment? It’s an and/or requirement, which could easily be amended to focus on retail sales.
Abolish recruited affiliate purchases from counting towards commission qualification.
By all means still pay on such volume through the binary, but do not include it for the purpose of commission qualification.
This felt like a no-brainer, so I’m not sure why it wasn’t implemented to begin with.
The second issue I identified pertains to the 51% rule.
As per the preliminary injunction, Vemma are prohibited from paying
any compensation related to the purchase or sale of goods or services unless the majority of such compensation is derived from sales to or purchases by persons who are not members of the Marketing Program (retail customers).
I took “any compensation” to mean that if an affiliate does not satisfy the 51% rule, then they earn nothing.
This, by virtue, was a retail qualifier that Vemma had to include in its compensation plan going forward.
Instead they’ve opted for a pro-rata approach, which is problematic.
The whole point of the FTC lawsuit against Vemma is to put a stop to what they allege is a pyramid scheme.
Under Vemma’s proposed revision plan, an affiliate can still focus on recruitment and get paid.
They won’t get paid as much as the old plan, but even with a token offering of retail, will still get cut a commission check.
This affiliate didn’t focus on retail sales and no matter how little Vemma might have paid them.
Furthermore, and more importantly, revenue entering Vemma was derived, in this example, primarily from Vemma affiliates.
What good is restricting affiliate payments pro-rata if Vemma as a company are still seeing the majority of their revenue sourced from affiliate purchases?
If anything, Vemma have gone and repurposed the 51% rule as a potential money-spinner, pocketing commissions affiliate are not paid in lieu of having less than 51% retail volume.
Write the FTC on this very matter:
We believe the 51% rule should be all or nothing.
An affiliate is entitled to full compensation if the majority of downline sales volume comes from customers rather than affiliates, and not entitled to any compensation if the reverse is true.
The 51% rule as interpreted by Vemma is not an adequate safeguard given the incentives of the binary comp plan.
The rule would also have to be applied across the board for all bonuses, including bonuses based on rank or rank advancement.
The counter to this is I suppose that in only paying commissions using retail volume as a base ratio match, that this in and of itself encourages retail sales.
As per Vemma’s take on the rule:
Under the Revised Compensation Plan, Affiliates will be motivated to enroll and sell products to new and existing Customers because their compensation under the plan is tied directly to the volume of Customer sales in their sales organization.
If they have no Customer sales, they receive no compensation. If less than half of their sales in their sales organization comes from Customers, then their compensation under the plan will be based on less than all of the sales volume in their organization by operation of the 51% Rule.
Thus, Affiliates under this Revised Compensation Plan are required by the very terms of the plan to enroll and generate sales of product by Customers if they want to earn any rewards under the program.
They’re not required, with commissions payable well below the 51% retail threshold. And it also doesn’t stop revenue flowing into Vemma from being primarily sourced from affiliates. And that to me runs counter to the spirit of the preliminary injunction.
What good is restricting affiliate commissions if Vemma as a company are still primarily able to generate revenue from recruited affiliates over retail sales?
The solution as I see it is to exclude downline affiliate purchase volume from commission qualification, and tie affiliate rank promotion (which in turn is pegged to binary earnings caps) to mandatory retail sales volume requirements.
Seeing as the ranks are based on binary cycles, implement the 51% rule there and require that cycle volume require 51% retail volume or an affiliate doesn’t qualify for any binary commissions.
Pending an unexpected resolution between Vemma and the FTC, a hearing on the matter has been scheduled for October 21st.
Footnote: Our thanks to Don@ASDUpdates for providing a copy of Vemma’s Motion to Approve Revised Compensation Plan.
Update 21st October 2015 – The FTC has filed their response to Vemma’s motion, which is basically a reiteration of the points raised in their discussion.
Despite misrepresentations from other corners of the industry, the FTC aren’t objecting to the use of a binary compensation plan. Rather the regulator is objecting to
a binary compensation plan that lacks sufficient retail incentives and safeguards.
This, the FTC claim
is expected to act as a money-transfer scheme, siphoning money from later entrants to compensate earlier entrants.
This establishes a structure where “individual earnings are dependent on the ongoing ability of a participant to recruit others into the same system,” thereby creating a system “where the vast majority of participants cannot recruit their personal investment.”
A hearing on the matter is scheduled to take place later today.
Update 22nd October 2015 – The hearing on the revised compensation plan was held yesterday before Judge Tuchi, with the matter taken under advisement.
Hopefully we’ll get a decision on the matter within the next week.
Update 29th October 2015 – Judge Tuchi’s decision has been published, with the ruling in favor of the FTC.
Vemma’s revised compensation plan as reviewed in this article is DOA.