Dave Woodward of Laramar Communities chose to accept a mission that some think is impossible: He's in the early stages of switching to a commission-based pay structure for the company's leasing agents. The mission will be a dangerous one, full of daunting unknowns, twists and turns at every corner, and even a possible explosion or two. But Woodward is ready for the journey, armed with high hopes of improving his company's on-site sales operations.
"We want to change the way leasing people operate and turn them into real salespeople," says Woodward, managing partner and CEO of the Greenwood Village, Colo.-based company. "If you look at any other sales organization, whether people are selling cars or stocks and bonds or cell phone plans, salespeople typically are compensated with [a] lower base and very, very high commission, so they are motivated to go out there and get sales." Woodward has just started testing the program at Laramar communities in several regions and intends to implement the program across his portfolio if all goes according to plan.
This compensation switch marks a monumental change for a company in the multifamily industry, which traditionally has paid its leasing staff with hourly wages and small commissions. But as more companies strengthen their leasing processes, they realize that the traditional pay structure does not necessarily allow for the best and brightest sales force. Multifamily firms can't compete with the earning opportunities offered in high-compensation professions like insurance and pharmaceuticals.
Industry interest in a commission-based compensation structure is low, and many are skeptical. Even so, a handful of companies–including public REITs like San Francisco-based BRE and Englewood, Colo.-based Archstone-Smith as well as private firms–are in the early stages of test-driving such a program. "We need to offer a compensation package that has progressive increases available to the 'stars' so that we have a chance to keep them," says Steve Heimler, CEO of Woodland Hills, Calif.-based Stratus Real Estate, which is testing several models. "We have even tested a model that has us paying the leasing agents more than the administrative manager and have found some interesting results. Based on highest rent achievable and closing ratios, the model would indicate that we can achieve greater results by paying the front line more money."
Different companies are trying different payment structures. A common practice is to pay leasing agents a percentage of the total lease value. So, for example, a sales agent would receive 2 percent of the total value, which would be $240 for a $12,000 sale (a 12-month lease at $1,000 per month). Other firms offer a fixed-fee commission per sale, typically $50 and up. Companies also pay commissions for renewals, noting the importance of resident retention.
Since programs are in the early stages, the results aren't in yet. But multifamily executives are already voicing strong opinions both for and against the system. Woodward, one of the biggest proponents, is the first to admit that the switch is not going to be easy. And he's not sure how many will follow Laramar's lead. "Maybe they will after we break the code," he says. How brave are you? Are you willing to accept the following missions?