I believe the three defining elements discussed here will reveal the fallacy of these new, improved systems, so far as “correcting the problems” so common in the MLM industry.

Why are compensation systems so important to MLM promoters? Because they are at the heart of what MLM is about. As one promoter admitted in a meeting I attended, “Our compensation system IS our product.”

Some of the common compensation systems used by MLM companies are as follows:

Unilevel systems, which allow an unlimited number of recruits on the front line. However, there is a limit on the number of levels deep that can qualify for commissions or overrides. Unitary systems could be referred to as simple or broad-based pyramids.

Matrix systems, which are shaped in the form of blocks, or matrixes, which have limits on how many distributors can be recruited into one’s front line. These could be referred to as blocked or flat pyramids.

Binary systems, in which recruiting is done in a downline of two legs, with incentives to maintain matching volume, or a balance, between the two legs. Binary systems are really matrix systems limited to two “profit centers” that may continue recruiting of downline distributors indefinitely. Binary systems could be considered split pyramids.

Stairstep/Breakaway systems allow distributors to ascend a stairstep of levels in a hierarchy of distributor breakaways. Each breakaway is a separate organization tied to one person who draws overrides from the entire breakaway organization. When tied to minimum requirements for breakaways on the front line, an extremely leveraged pyramid scheme results, in which enormous payout to top level distributors is financed partly by commissions from purchases of hundreds or even thousands of aspiring distributors beneath them—the vast majority of whom lose money.

Stairstep/breakaway systems are really nested pyramid schemes, with many pyramids (often polypyramids) nested within a master pyramid or megapyramid. The effects, in terms of losses to participants, far exceed those of naked pyramid schemes, which are considered illegal. In the author’s opinion, if any of the product-based pyramid schemes were found to be illegal, stairstep/breakaway compensation and marketing systems should be at the top of the list.

Other MLM’s or PPS’s may exist and will continue to be developed, as creative pyramid promoters seek new ways to make a fortune and to circumvent legislation against pyramid schemes or to avoid arousing regulatory scrutiny. In many cases, before regulators figure out what is happening, the promoters have made their fortunes and moved on. Seldom is much or any of the money recovered for the victims of these scams.