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Commission schemes

I run a successful independent agency but I’m wondering whether to change our commission arrangements. I want to ensure our negotiators are hungry for spotting and converting every possible business opportunity. What are your thoughts on commission schemes?

Julian O'Dell

Julian O'DellTeam commission imageJULIAN SAYS… We provide training to countless agents; every one is different, not least on their commission structure. Some pay basic salaries without commission – others commission only. Between those polar opposites lies a range of systems. So what is best?

The first question is what are you aiming to achieve from your commission scheme? Challenge, staff loyalty, motivation, reward, targets met/exceeded – all noble goals that can be secured by an appropriate remuneration structure.

The usual options are team commission or an individual scheme. Both have merits and downsides.

INDIVIDUAL SCHEMES

These reward each person for their own achievements. Every personal sale, instruction or associated referral (eg mortgages, conveyancing) earns that person money – a flat rate or percentage of the company’s resultant income from that activity.

With team commission everyone has a vested interest in every instruction and every sale.

The perceived upside is that it motivates each staff member to strive for better results and instills a sense of competition between negotiators, creating a real sales edge. The potential downside is that Johnny Neg will not be over-interested when Mrs Jones calls in to discuss an issue on her sale if that sale is worth nothing to him.

The other negative is that if two buyers are after one property but were introduced by different negotiators, the agenda of those negotiators is to get the vendor to favour his buyer, when that decision should be made objectively on each applicant’s merit. The individual scheme has also led to friction between team members when there are question marks over who actually was  responsible for certain sales: the introducer? The one who arranged the viewing? Who took the offer?

TEAM COMMISSIONS

The alternative is a team commission arrangement where every member benefits financially from every successful transaction.

The positives: a strong team ethos, everyone has a vested interest in every instruction and every sale. If more than one purchaser is interested in a property via different negotiators, it doesn’t matter to those negotiators which buyer gets the property – meaning that unbiased fact-based judgement is more likely.

This arrangement also allows staff to be deployed according to their strengths; if a negotiator is adept at sales progression they can spend time on this without fear of missing out financially.

The downside is that you might end up carrying passengers who sit back, letting the others do the work. This issue needs managing but don’t underestimate the power of peer pressure when a colleague is perceived to be swinging the lead. Some ‘high flyers’ might also begrudge earning the same money as a less “productive” colleague.

The latter issue can be dealt with by incorporating an element of personal commission via conveyancing or mortgage referrals by each employee and/or tweaking the team commission each member receives, based on rank or service.

STRATEGY

Our strategy for one client was to move to a team commission basis. The owner’s thoughts afterwards were interesting: “We introduced team office commission in April. We still have personal commission elements which focus on booking valuations and referrals – around 20 per cent of a negotiator’s income still comes from the personal element.”

“Overall I believe it has made sure every person is a team player. Everyone looks at the bigger picture rather than own individual gain so we are much more effective in increasing valuations (60 per cent up in a tougher market). The offices are more harmonious and people work to their strengths without fear of losing commission. Also, there is greater willingness to prospect stock and much better levels of customer service.”

On a final note, rewards of any nature should always be linked to actual exchanged or completed business. Agencies have come a cropper by paying staff on gross business (instructions and agreed sales), which ultimately failed to produce income. One firm paid valuers for putting properties on the market, regardless of whether they sold – no shock that the quality of stock was dubious. Another asked staff to ‘pledge’ a number of agreed sales each month and had to hit those pledged figures to receive their commission – unsurprisingly they had the highest fall-through of any firms I’ve seen in years!

In summary, pick the right scheme and make sure you only pay money out when you bring money in!

January 25, 2016
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