Operational and Compensational Implications of Reducing Office Size
As is true with everything in business, the issue of reducing office size cannot be viewed in a vacuum. If you decide that reducing office size is an important initiative for your company, first consider all operational attributes that are impacted by changes to the physical plant. Keep in mind that both business and culture are at play here and it is important that sales associates feel there is benefit to them as the company makes this change.
Ask yourself a few key questions about how reducing office space would impact your culture.
How will consumers be best served?
Will compensation structures for virtual agents differ from brick and mortar agents?
How will the expense savings on the physical plant be put to work?
Will you create new and useful tools, services and programs that will attract top agents?
Will you pass on some savings to agents by helping them set up virtual offices?
Strategically visit potential changes that may need to accompany office space reduction. Things such as marketing plans, advertising, agent bonus structures and incentives must be taken into account before any action is taken.
Brokers who choose to induce change toward smaller offices by motivating agents through compensation incentives might consider the following examples:
(a) Give 5% more across-the-board if agents work virtually, or
(b) Make the ‘in-house’ plan 5% less than current practice and pay out at current splits only if agents work virtually (we prefer choice b)
(c) Consider introducing commission indexing by CPI or another metric in order to assure that margins will be maintained over time despite the higher payout to agents working virtually (see below).
Indexing of Commission Plan
Each year, increase the dollar thresholds that make up the different bands of your commission plan by some multiplier (e.g., the consumer price index). For example:
Before: XYZ Company has only one commission plan that resets every January 1st and is structured as follows: each agent gets a 55/45 split on the first $50k of GCI, 65% for everything between $50k and $100k, and 75% on everything above $100k.
After: What occurs if the thresholds are increased by only 4% each year? The first band (agent gets 55%) now runs from $0 to $52k (not $50k) while the second band (agent gets 65%) is now from $52k to $104k. Fast-forward another year and the targets are now at about $54k and $108k and after three years they’re at about $56k and $112k, and so on. It’s not too dramatic a change from one year to the next but the cost of not doing this is ever-shrinking margins that become uncomfortable over time.
Operational and Compensational Implications of Reducing Office Size
As is true with everything in business, the issue of reducing office size cannot be viewed in a vacuum. If you decide that reducing office size is an important initiative for your company, first consider all operational attributes that are impacted by changes to the physical plant. Keep in mind that both business and culture are at play here and it is important that sales associates feel there is benefit to them as the company makes this change.
Ask yourself a few key questions about how reducing office space would impact your culture.
Strategically visit potential changes that may need to accompany office space reduction. Things such as marketing plans, advertising, agent bonus structures and incentives must be taken into account before any action is taken.
Brokers who choose to induce change toward smaller offices by motivating agents through compensation incentives might consider the following examples:
(a) Give 5% more across-the-board if agents work virtually, or
(b) Make the ‘in-house’ plan 5% less than current practice and pay out at current splits only if agents work virtually (we prefer choice b)
(c) Consider introducing commission indexing by CPI or another metric in order to assure that margins will be maintained over time despite the higher payout to agents working virtually (see below).
Indexing of Commission Plan
Each year, increase the dollar thresholds that make up the different bands of your commission plan by some multiplier (e.g., the consumer price index). For example:
Before: XYZ Company has only one commission plan that resets every January 1st and is structured as follows: each agent gets a 55/45 split on the first $50k of GCI, 65% for everything between $50k and $100k, and 75% on everything above $100k.
After: What occurs if the thresholds are increased by only 4% each year? The first band (agent gets 55%) now runs from $0 to $52k (not $50k) while the second band (agent gets 65%) is now from $52k to $104k. Fast-forward another year and the targets are now at about $54k and $108k and after three years they’re at about $56k and $112k, and so on. It’s not too dramatic a change from one year to the next but the cost of not doing this is ever-shrinking margins that become uncomfortable over time.
Related Posts
BHGRE® Brokerages Recognized in the 2024 RealTrends 500
The Better Homes and Gardens® Real Estate network extends its sincere congratulations to the affiliated
How to Sell a High-End Home During Any Market
Considering the value of high-end homes, it’s understandable that luxury homeowners and agents would be
Winter Home Safety Tips to Share with Your Clients
As winter descends on cities and small towns across the country, many people find themselves
10 Ways to Wow Your Real Estate Clients
Good customer service is imperative for real estate agents, but being polite and knowledgeable about
Sellers Reluctant to Sell? Here’s What May Change Their Minds
Current social and economic conditions have put the breaks on many homeowners’ plans to sell.
BHG.com Network Highlights 2023
Better Homes and Gardens magazine features the expert insight of our affiliated agents and brokers in