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Income Producer Plan 3: Residuals/Trailing/Back-End Payouts For certain types of income producers, the full value of the transaction is not realized at the time of saleThere are different examples of this occurrence For example, in some cases, revenue continues on an annual basis such as with life insurance premiums Figure 5-6 is an example of a residual commission schedule used by the life insurance industryThe value of the recurring revenue has value on a declining basis, eventually providing no income to the salesperson by the fourth year Because the seller is classified as an income producer, these future earnings are usually assured unless abridged by the payment policy In some instances, there is a buyout provision to make payments on these future earnings if the income producer should leave prior to realization of these earningsTrailing is another expression for residuals In other cases, the final value of the transaction is not fully recognized until the disposition of an investment Companies configure numerous back-end payouts depending on their unique circumstances Back-end payouts are common in property and real estate development when the true value of the deal is not realized until the investment and/or property is sold at some future dateAs specified in contract language, the income producer will earn a percent of profits (normally) when the investment is sold, syndicated, liquidated, or transferred Observations Paying for future revenue or profits is the annuity element of income producer plans

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Downloaded from Digital Engineering Library @ McGraw-Hill (wwwdigitalengineeringlibrarycom) Copyright 2004 The McGraw-Hill Companies All rights reserved Any use is subject to the Terms of Use as given at the website

cities (or within large cities) and also to offer Layer 3 services from Ethernet concentration nodes that aren t connected directly to a local Layer 3 service PE

Residual Commission Schedule Insurance Premium Residuals Portion of Annual Premium 100% 75% 25% 0%

Multiple Services on One Network (Not Just Ethernet)

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As discussed in the section on network convergence, MPLS is the natural technology choice for offering a range of Layer 1, Layer 2, and Layer 3 services over a common network Again, the expectation is generally that over time most services will be Ethernetor IP-based and that most customers will be connected to the service provider over an Ethernet interface, yet carriers will continue to offer legacy Layer 1 and Layer 2 services for many years, and in many cases will wish to retire the platforms currently deployed to offer such services (often those platforms have already reached their end of life) and migrate those services onto the next-generation networks currently being deployed to offer IP and Ethernet services Since MPLS pseudowires are the technology of choice for legacy service migration and since MPLS-based IP VPNs are the technology of choice for IP services, a carrier wishing to offer all services over a common platform is most likely to select EoMPLS for Ethernet services

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Income Producer Plan 4: Pools Use pool payments when a group of income producers work together to realize shared income Some traders (currency, bond, electrical power,and many others) often work on a trading desk as part of a team A pool accumulates the earnings of the transactions executed by the income producersThis block of money is then distributed at the end of each performance period by a predefined formula or methodology as illustrated in Figure 5-7 Some organizations use a hybrid individual and pool model One hybrid approach features a commission paid to individuals for normal transactions and the earnings for mega deals partially allocated to a pool for distribution at the end of the performance period Another hybrid approach is to accumulate the pool based on performance, but allow manager judgment of individual contribution to affect some or all of the pool payout to participants Observations Pools are not widely used except for certain trading and financial markets Pools are not effective at driving (causing) team performance They are primarily a mechanism for sharing results

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