From Mutt to
Best in Show How you compensate your agents can change the color of your bottom line from red to black.
When Byron Hendricks, CRB, looks at the several hundred sales associates affiliated with his company, Prudential Real Estate Professionals in Salem, Ore., he sees a group of rising stars. But it wasn’t always this way.
and they were hitting their compensation targets too early in the year and ratcheting up to higher levels of split well before they generated enough company dollars to offset what they cost the company.
In 2002 his company was struggling. Although his sales associates were performing well, with many of them organized into teams that were pulling in $1 million a year or more in gross commission income, the compensation structures he had in place were resulting in too small a company dollar for his brokerage to maintain profitability.
Hendricks found himself in a peculiar situation: compensating two sales associates at the same rate, even though one was supported by a team that would rise to a higher split far faster than the one operating solo.
Part of the problem was the rapid growth of teams in his company. What started out as an experiment with one of his top producers about a decade earlier had mushroomed. By 2002, there were some 15 teams operating out of his office, comprising about a third of his sales force. The teams themselves weren’t a problem. “We encouraged people to grow teams,” says Hendricks, the company president. “We’ve been proud to facilitate that.” The problem was that the compensation plans that were in place — a mix that included 100 percent plans and several levels of splits — no longer made sense. The teams were compensated as if they were one individual, not a group of sales associates working for one individual,
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As a result, the associate supported by the team would more quickly get to keep a greater share of gross commission income even while generating far more overhead costs to the brokerage, which had to support the team members with desk space and supplies. At one point, Hendricks had an associate who, thanks to the team under her, quickly ratcheted up to a 90–10 split, generating more than $1 million in GCI. But the performance ultimately hurt the company’s profitability because the 10 percent company dollar was insufficient to support the team. It “wasn’t fair because the less profitable teams were being subsidized by other associates,” says Hendricks.
BY ROBERT FREEDMAN
What do Your Associates Think? To get control of the situation, Hendricks in 2002 brought in two consultants. Their marching orders weren’t to drive more revenue by helping his associates ramp up business, since the problem wasn’t on the revenue side. Nor was the goal to shrink commission splits, because the splits themselves weren’t solely the problem. Rather, the goal was to conduct an upand-down examination of Hendricks’ company cost structure and recalibrate all compensation plans — not just team plans — so that each individual and team paid a share of commissions to the company proportional to the costs they generated. To determine the right mix of compensation plans, the consultants didn’t just look at quantitative factors like income versus costs; they gathered qualitative information as well to determine whether the level of services and the nature of office practices were in alignment with the associates’ expectations. If associates felt they weren’t getting the services they needed, for example, the new compensation plan would have to factor in costs to provide increased services. To tease out that qualitative data, the consultants surveyed and interviewed