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CompensationMaster Newsletter Article, September 2004 One of the hottest topics in compensation right now is how
to compensate teams effectively.
More and more agents are forming teams. The National
Association of Realtors is starting to devote resources to educating agents
about how to form teams. Once NAR has endorsed a trend, there's no point
fighting it—you have to embrace it and figure out how to make it work for
you.
The problem with teams, from the broker's perspective, is
that when agents combine their revenue, they reach a higher split faster.
The company dollar drops, but expenses stay the same.
The solution is to offer separate commission schedules for
teams, and design those schedules to recover the costs associated with
supporting each agent: office space, administrative expense, managerial
support, utilities, etc. (Read more about these expenses in "Tips for
Compensating Teams" from the August 2001 newsletter.)
Some brokers are afraid of losing market share if they don't
keep teams on the same commission schedule as individual agents. They are
willing to give up company dollar for the sake of keeping the peace. But
that puts the long-term profitability and stability of the company at risk.
The way to get a more positive response from agents is to
provide support to those agents who want to form teams, helping them
structure the teams more effectively. This kind of support can be highly
valued; most agents don't know how to design team compensation effectively.
What tends to happen is that one of your top agents, who is
currently receiving 80%, will talk to an agent who might be getting 50%.
She'll offer him 70% of what she gets if he joins her team. That's a good
deal for him, as 70% of 80% is 56%. He's now getting an extra 6% on every
deal he closes.
She keeps 24% of what he makes. That's good, but it may not
be enough to compensate her for the overhead and additional expenses she
carries for him, plus the loss of the time it takes to manage him. She may
end up making less than she was before—and adding management headaches.
The company loses too, as it now keeps 20% of the revenue
for the lower-producing agent instead of 50%—a loss of more than half its
margin!
So in this example, the person who benefits the most is the
under-productive agent, who was only at the 50% level. That's just not
satisfactory.
You can get better results working with agents who want to
build teams, providing advice and helping them formulate solid business
plans. This support can be part of your total package for teams, which would
also include a separate commission structure.
When you take this approach, you'll have more productive
teams, happier primary agents, and you'll be able to keep your margins where
you need them.
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