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REALTOR® Emeritus | | Creating and Monitoring Business Systems Compensation Policies | |
| Financial Management Is Your Company Profitable? Tax Record Keeping Escrow and Trust Record Keeping Personnel Management Compensation Policies Policies for Real Estate Operations More Resources | More than half of the brokers who participated in a 1999 survey conducted by Real Estate Broker's Insider said they offered their sales associates a menu of compensation plans ranging from straight commission to straight salary. Compensation Program Breakdown All Brokers Sales Assoc. Percentage commission split 74% 59% 83% 100 percent commission 19 26 14 Commission plus a share of profits 3 4 2 Straight salary 1 3 1 Salary plus a share of profits 3 5 1 Share of profits only 1 2 Less than 1% Median starting percentage commission split 60% 65% 60% Source: The 2001 NATIONAL ASSOCIATION OF REALTORS®Member Profile 5 Issues in Designing Your Compensation Program Consider the following in designing your compensation, says real estate attorney Oliver Frascona,GRI, Frascona, Joiner, Goodman and Greenstein, P.C. 1. Your company's financial position—find a balance between paying enough to hire top salespeople and paying so much that you erode your profits. 2. The kind of salesperson you want to attract—recognize that top performers know what they’re worth. 3. The experience and productivity of your current sales force—consider that while you may not pay out as high a commission rate to inexperienced or less productive salespeople, your gross income also will be lower. And you may spend more on training and management with new salespeople. 4. Supply and demand for salespeople in your area—ensure that your commission structure doesn’t keep you from filling vacancies or losing top salespeople to other brokerages. 5. Competitive parity—learn what others are paying; you don’t have to offer the same commission split, but be sure that your overall compensation and benefit package is competitive. 4 Steps to Calculating Compensation Your compensation plan should reflect your own costs and profit goals. 1. Analyze each salesperson's annual performance. 2. Calculate the company's annual per-person expenses. 3. Build in a per-person profit expectation. 4. Develop your compensation plan around a target company dollar from each salesperson. Hal Kahn, Kahn Inc. REALTORS®, Newburgh, N.Y., in REALTOR® Magazine Online, February 1997 Compensation Options—Pros and Cons As brokers compete to recruit top salespeople, they are looking for commission split arrangements that reward producers without giving away the store. Fixed schedule. Provides fixed percentages of commissions to the salesperson and the manager. Pros -Easy to administer -Doesn’t favor one group over another Cons -Few incentives to exceed goals -May not be competitive in today’s market Incremental commissions. When a salesperson's earnings reach a specified level, his or her portion of the commission split increases. Pros -More incentive to exceed performance goals -Only increases salesperson compensation when performance excels Cons -Increases complexity of administration and record keeping -Because calculations are often made only once a year, may not provide incentives for improvement over shorter periods -Compensation may drop sharply at the beginning of each year, as associates revert to lower commission rate Quarterly averaging. Commission percentage is based on a 12-month average of the salesperson's earnings. Pros -Fairer to good performers who may have a temporary slump -Gives opportunity for salespeople who improve to receive benefits of better performance sooner Cons -Requires more effort to administer 100 percent commission plan. Salespeople retain all of their commission but pay the broker a desk fee. This system attracts seasoned, productive salespeople. Pros -Predictable income stream because salespeople pay a set amount regardless of sales -May appeal to top performers, who believe this structure lets them earn more Cons -May limit company share of earnings in strong markets Salary, plus commission. Salespeople receive a regular salary, plus, in come case, a small commission on sales. Pros -Calculations of expenses are easier -Plans often include benefits, such as insurance and paid vacations, which will help attract salespeople -Added bonus component provides performance incentive -May improve customer service since salespeople do not feel as much pressure to move to the next sale -May reduce adversarial relationship between broker and sales associates -Offers more ability to supervise and control the activity of sales associates Cons -Expenses are fixed, regardless of sales -May not appeal to top producers, who believe they can earn more on straight commission -Runs the risk of not motivating salespeople to undertake hard jobs, such as prospecting TIP: It’s possible to offer more than one compensation option, but be sure that each option is administered in the same way to all participating sales associates. Advanced Compensation Options · To encourage teamwork, put a certain percentage of all commissions in a profit-sharing pool and divide it among all salespeople monthly. —Mike BrodyCRB, CRS, Keller Williams Realty, Dallas, in Texas REALTOR®, July 1996 · To make salespeople feel like part of the company, tie profit sharing to company profitability. One Michigan managing broker with 88 full-time sales associates links her program for top producers to the company dollar. When the company dollar reaches $55,000 in a calendar year, the commission split is 75 percent; when it reaches $60,000, the split is 80 percent. —Real Estate Broker's Insider, Alexander Communications, January 1999 · To keep top performers at your company, offer them an equity interest or stock in the company. · To keep commission splits equal but still attract top producers, rebate a portion of desk costs to the top producers during the year.—Real Estate Broker's Insider, Alexander Communications, January 1999 · To give incentive to salespeople to remain with the company, add insurance or a retirement plan to your compensation. TIP: Too many incentives that are only available to top salespeople may present problems in recruiting and retaining mid-level performers. Next Page: Compensation Programs for Sales Associates | |
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