- 5 -
Amway maintains a “pyramid” incentive system. Under this
system, an “upline” distributor receives a bonus based on the
volume of sales generated by his or her “downline” distributors.6
Thus, the system presumes that the “upline” distributor’s
potential for profit will increase as his or her network of
“downline” distributors becomes wider and deeper.7
Because the “upline” distributor’s bonus is based on the
volume of sales generated by “downline” distributors, such bonus
is not directly affected by a “downline” distributor’s
profitability or lack of profitability.
The Amway “pyramid” incentive system is promoted by Amway in
the form of the “9-4-2 plan”.8 Under the “9-4-2 plan”, each
Amway distributor is encouraged to personally recruit 9
“downline” distributors, each of whom in turn is encouraged to
recruit at least 4 “downline” distributors, each of whom in turn
is encouraged to recruit at least 2 “downline” distributors (for
6 The “upline” distributor’s bonus is also based on the
volume of sales generated by the “upline” distributor himself or
herself. However, the volume of such sales is generally minimal,
and the portion of the bonus attributable to such sales is
negligible.
7 The “width” of a network refers to the number of
“downline” distributors that are personally sponsored by the
distributor in question, and “length” refers to the number of
“downline” distributors that make up each “leg” of the network.
8 More typically, the Amway system is promoted in the form
of the “6-4-2 plan”. See Nissley v. Commissioner, T.C. Memo.
2000-178. The two plans are identical, except for the number of
first-tier “downline” distributors.
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Last modified: May 25, 2011