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CompensationMaster Case Study, February 2007 When John McTavish first heard about
CompensationMaster, he was the general manager at a large multinational real
estate agency with more than 100 offices. Originally from Australia, he had
moved to New Zealand to take responsibility for all aspects of the company's
operations in that country.
He was invited to watch an online demonstration of CompensationMaster's
approach to sales force compensation by Graham Crews, senior lecturer in real
estate with Massey University. Crews had incorporated the company's system into
the university's real estate block course programme to help teach students how
to properly analyze the financial structure of their agency and handle real-life
compensation issues.
"I was impressed," says McTavish. "CompensationMaster offered far more
sophistication than any other system of paying. I believed it could
revolutionize the way we paid our sales people, giving us the ability to tune
compensation to people at different levels within an organization and providing
a way to pay high split levels while affording some level of profit protection
to the company." But for a variety of reasons, the multinational did not adopt
the solution.
Fast forward several years later… McTavish left that firm and acquired an
interest in another real estate agency, Direct Realty (now Premium Direct
Realty). He remembered CompensationMaster and decided to take advantage of the
company's capabilities at his new firm.
"We wanted to create a commission structure that would reward
high-performance people, and pay them as much as we could pay them without
affecting the long-term viability of the company," McTavish explains.
They also wanted to simplify the agency's commission structures.
"We had a
commission payout very few people understood," states McTavish. "Bonuses were
based on net earnings, not gross; there were variables on variables. When
compensation is not fully understood, there's a fear that it might be
disadvantaging people. We wanted a commission structure that was competitive in
itself, that could be applied to each person fairly and equally."
"We also had a problem in that we were paying too much for
ordinary performance," McTavish adds. "And all the bonuses kicked in at the same
time. If the company hadn't made money by the ninth month, it wasn't going to
make any."
McTavish commissioned CompensationMaster to perform a market analysis. By
this time, Graham Crews had joined CompensationMaster as a senior consultant. He
and Brad Cocks, director of CompensationMaster Oceania, performed the analysis.
The CompensationMaster team interviewed the company's sales and management
staff, and analyzed the company's financial data. Then they developed a set of
seven compensation plans tailored to Premium Direct Realty and its specific
market opportunity.
Before the plans were introduced to the sales force, CompensationMaster's
team helped the agency's managers prepare thoroughly, even walking them through
the reactions the sales people were likely to have. "They told us what we should
present to the group and what to present one-on-one," says McTavish. "If a
person is worried about change, I can't think of a better team of people to walk
you through, hold your hand and be with you every step of the way. It gives you
confidence in the implementation."
"It required a lot of what-if scenarios comparing the old and new plans,"
continues McTavish. "The sales people wanted to compare how they would be paid
at a variety of income levels. That's where CompensationMaster graphics were
sensational. We were able to take actual earnings from last year and plug them
into the new versions."
"Our top people were showing a $30,000 to $40,000 increase in earnings, which
is what we looking to achieve but it still scared us," says McTavish. "However,
you're not paying it to everybody and as long as you keep a similar distribution
you're protected by the profit built into the software."
The new commission structures were well received. All but one of the
company's 30 sales people have chosen to convert to the new plans and that last
person will move over on his anniversary date.
With the current sales staff on board, McTavish's focus moved to recruiting.
The result: five new recruits are starting this month, all using the new
commission plans designed by CompensationMaster. Some of the recruits are new to
the industry; McTavish notes that his company's commission plans stood up well
compared to offers they received from other companies.
The other two recruits were already in real estate. They chose Premium Direct
Realty even though the initial splits were less than their previous agencies had
been paying. "This isn't a problem," states McTavish, "because these are good
people. We're no longer going to be as attractive to a low-end performer
relative to other companies, but more attractive to top people."
"Sales people don't always tell the whole truth about how much they are paid
at another company," says McTavish. "But mentally they plug in last year's
earnings. Either they are top performers and see the advantage, or they join
with the goal of becoming a top performer. Either way, you've got people with
the right mindset."
"CompensationMaster is a program that has the ability to take a very
important and complex area of the business—the single largest expense—and
distill it into a very simple formula and then make it a tool to recruit and
retain the best sales staff," he adds.
Premium Direct Realty's aggressive approach to recruiting and retention has
not come at the expense of profitability. "I like that we build in our profit
before we do anything else on the screen," McTavish states. "With CompensationMaster's
new plans, we're talking about profitability in the 20% net-to-gross range which
will put us in the group of the top-performing agencies in New Zealand."
"CompensationMaster is a nice company to be in business with," he concludes.
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