Mission: Increase the Bottom Line
Advantage:
A strong bottom line is the underlying mission of a commission-based pay structure. Real salespeople translate into more leases, which lead to increased occupancy and ultimately strong financial performance for the property. “Imagine instead of $10 an hour plus $30 a lease, someone is making $8 an hour but $200 a lease,” explains Dave Woodward, managing partner and CEO of Laramar Communities. “When someone says, ‘Gee, I can’t see an apartment until Sunday,’ but the property is not open on Sunday, guess what–that salesperson is going to say ‘Let’s make an appointment for Sunday at 10 a.m. It’s worth $200 to me.'”
Challenge:
Paying commission might help increase your property’s bottom line, but at what expense? Either the property owner or the leasing agent is bound to end up upset, says Terry Danner, co-CEO of Rockville, Md.-based Riverstone Residential Group, a property management firm spun off from Trammell Crow Residential. Leasing agents will be upset if they don’t earn their anticipated commission, and property owners will be on edge if they have to pay a high commission. “The owner is going to be disappointed because he will think, ‘Why couldn’t I have gotten there by paying the normal industry standard of $30,000?'” Danner says.
Another concern is that the system might create animosity in the workplace. “Will it turn our leasing people into sharks?” Woodward asks. “Will they [sales staff] be backstabbing each other for the next sale?” On top of that, a high-performing sales agent has the potential to earn more money than non-sales employees, like the property manager. Talk about friction.
Mission: Reduce Employee Turnover
Advantage:
High turnover rates have plagued the apartment industry for years. But if star salespeople are able to make big bucks leasing apartments, they may not be lured away by high-paying sales industries or forced to switch to a higher-paying apartment managerial position. A commission-based compensation structure sets the stage for a real career in apartment sales, says Woodward of Laramar Communities. “Your top salespeople can make more money over time and stay in that [sales] role and not feel like they have to go be the assistant manager or manager.” And avoiding turnover expenses certainly helps the bottom line.
The program also self-regulates to ensure a strong sales team. Those who aren’t top performers won’t make enough money and will choose to leave, while the successful ones will want to stay and continue earning top dollars.
Challenge:
What happens if too many of your leasing agents realize they can’t make the cut? High turnover will likely result when employees discover they simply aren’t making enough money to survive or aren’t earning adequate commission during the slow winter leasing months, says Jim Kjolhede, president of Satteron Enterprises, a real estate consulting firm based in Coppell, Texas. “I think leasing people, just like many of the employees, are living from paycheck to paycheck,” says Kjolhede.
REIT, says he is actually seeing more leasing agents join the company after working in commission-based sales jobs. “They want a solid company where they have a good future, a good 401(k) plan, and good health insurance,” says Grimes, senior vice president and director of property management operations.
Of course, there are bound to be employees who enjoy the competitive spirit of commissions. But instead of encouraging employees to stay and make money, a commission-based setup instead might push them to jump to other companies in search of the highest pay, argues A. David Lynd, COO of the Lynd Co., a San Antonio-based real estate firm. “When people realize they can earn higher commission somewhere else, they are going to leave.”