How to Approach Team Compensation

Compensating your team so that they’re happy and you’re making money is difficult and one thing team leaders screw up. However, if you follow these 4 simple principals of compensation, you’ll have a high performance team in no time!

How to Approach Team Compensation

We’re not going to look at how to compensate all positions, but I do want to show you some different compensation models. How do you compensate your team so that they’re happy? So you’re actually making money?

In a bit, I’m actually going to show you how to compensate buyers agents specifically, because this is where I see the vast majority of mistakes. Most people screw up how they compensate their buyers agents and it ruins the whole thing. I’m going to show you how to avoid that, but first, I need to talk with you about principals.

The Principals of Compensation

Number one is this: keep your compensation plans simple. Too many people get these elaborate things and nobody knows how they’re compensated. If you don’t keep them simple, you’ll go to your team members and have a conversation that goes something like this:

YOU: “How do you make more money?

THEM: “I don’t know. I think I have to sell something.

YOU: “Okay, you’re on the right track, but how do you make more money?

And they still don’t know.

That’s the problem with complex compensation plans. Nobody knows exactly how to make more money. A HUGE mistake that I often see is that people come in and they go “so if you bring the lead, then you get X. But if I bring the lead, but it’s a relative of yours, you get Y. But if I bring the lead and it’s nobody you know, you get Z.” And all the sudden, it just becomes this big, clogged, complicated mess and every time you have to cut a check, you need a calculator. It becomes a formula and you’ve got this massive spreadsheet to maintain it. This is how you know you’ve screwed up your compensation plan. I don’t care whether it’s for a buyers agent, a listing specialist, an ISA, whoever it is, your compensation plan needs to be very clear and very simple.

Number two is this: it needs to protect your profit margin. It may seem obvious, but yet this is where most people screw it up. Because then when they want to grown and they want to scale, they realize they’ve given too much away and they don’t have the funds to be able to scale the business. Because there’s nothing there. Their profit margin is gone because they didn’t understand how to protect that profit margin in a compensation plan that makes everybody thrilled with the money that they’re making. And they don’t know how to sell it, but I’ll show you how to do that in just a second.

Number three: make sure you’re compensation plan is fairly based and on performance. Everybody who comes on to your team needs to start at the bottom and work their way up. What you should never have is somebody who comes on to the team brand new and say “well I really believe in this person, so instead of compensating them like everybody else, I’m going to give them a little bit more.” You want to know how to create pissed off team members? Wait until they figure out that somebody else is making more than them for the same work that they’re doing and they haven’t proved themselves on the team. That just pisses people off. That’s a cancer on your team. You don’t want that.

Number four: use commission-based plans when possible. Put as many people on commission as you possibly can. Don’t pay salaries when you don’t have to. Put as many people onto a commission based plan, because that means that they only get paid when they do what? SELL. And what are you paying them to do? SELL.

Now, there’s certain positions you’re going to have to pay a base salary, but you know what I want you to do? I want you to pay a salary that covers the bills, but doesn’t allow them to become fat and happy. Because I still want them to be hungry and I want to reward them on the performance of the business. I want them to have an upside. I want them to have equity and investment in the growth of the team and the growth of the business, so that as your business is growing, guess what else is growing? Their income, because it’s directly tied to the performance of the business.

I don’t want people on the team who can sit back and go “you know what? I’m making my money. Doesn’t bother me you guys can’t sell, as long as my pay check keeps coming, I’m good.” And there’s too many people that are getting fat and happy salaries out there that probably ought to be pulled off of their compensation plan. So you’ve got to make sure that you use commission based plans.

Buyer’s Agent Compensation

This is important. Because this is where most people screw it up. A buyer’s specialist is one of the most poorly compensated positions and it’s because everybody is afraid of selling them on a commission structure that works. So here’s what I’m here to tell you: a buyer specialist should NEVER ever, under any circumstances, be paid more than 50%. Ever.

Now you know what I recommend? 40%. Here’s why: people think it’s crazy. Who’s going to want to come work for 50%? That’s everybody’s next question “why would anyone want to work for 50%? Or less? Or 40%?

Here’s what I want you to keep in mind: let’s say you get a commission check of $10,000. And let’s say you’re on a 50/50 split. So $10,000 comes in, 50 (or $5,000) goes to your buyer’s agent, $5,000 comes to you. The buyer’s agent goes “sweet! $5,000 straight into my pocket.” And you’re looking at your $5,000 going “Awesome! $1,000 to marketing. $1,000 to admin, $1,000 to the office, $1,000 to this…” And you’re all of the sudden looking at your $5,000 going “WAIT A MINUTE! There’s only $1,000 left.” And some of you probably wish there was $1,000 left over. Some of you are like “I had to pay an extra $1,000. They got their $5,000. I got my $5,000, and then I owed $7,000. I don’t know how that works.” When somebody wonders why they would come work for you for 50%, you need to figure out how to sell it.

What happens is most people get stuck on the value proposition. See your value proposition is not the split, it’s what they get for the split. So if somebody comes in and goes “why am I going to pay you 50%? I could go make 100%,” here’s your answer:

You’re absolutely right, but you’re looking at the wrong number. Do you care about your split or do you care about your take home income? Which is more important to you? Do you want to make 100% of $50,000 or do you want to make 50% of $250,000? Your choice. I can help you make the latter or you can go make 100% of 50K if you want. That’s your choice, but what I offer in exchange for this 50% is that I’ll handle all of your marketing, I’m going handle all of your admin, I’m going to generate all of your leads, I’m going to teach you how to be successful in this business. I’m going to set it up so that you don’t have to do all that work that you hate. The hardest part is to run a business. I’m going to do all of that for you, so all you have to do is show up, work the leads we give you. You’re going to make your money, you’re going to get to go home, your family is going to love you and you’re going to enjoy this business a whole lot more. And you’re going to make more money.

You’ve got to change the conversation. If they’re stuck on the split, you haven’t shifted their focus. You always need to shift their focus from the percentage to the income number. Their net income more often than not will go up dramatically on a team versus taking 100% of their own production. And what you also want to do is show them the numbers. Say “by the way, you take your 50%, it goes straight into your pocket. I take my 50%, look at all these expenses. Do you want to pay all of that? If you want to take it over, I’ll take 50% and I’ll let you cover. You can take 50% of my production.” And they are going to look at it and go “I don’t want to do that. That’s too much work. That’s hard!” That’s when you go “Yes, it is. That’s why I’m doing this side and you go do what you’re great at. You go work with people and let me handle the business and the structure.” When they see it, it makes a whole lot more sense for them so you’ve got to structure it correctly.

We don’t have time to go in to all the sample compensation plans and the different structures, but I want to give you a way to get the different compensation plans based off the positions. So a lot of those positions I showed you, we have a sample compensation plan that you can grab.  Remember: every industry is going to be a little bit different. Salaries are dependent on your market place. There’s no hard and fast rule. It depends on qualifications, competitiveness, and all of those things. You have to do it based off of your market. But the percentages still don’t change. They are set, so that everything we give you in there talks about specific percentages, the reasoning behind it, so that you can take it back and start evaluating what makes the most sense for your team.

One last thing I want to address is this, because a lot of people go “well what happens if I’m already stuck in a compensation plan that doesn’t match what you’ve said? What do I do?” It’s a great questions and here’s what you do: let’s say you’ve got a buyer’s agent on the team who’s making 60% or 70% or whatever atrocious number you gave them before you realized this sucks.

How do you deal with that? Do you go back in and just cut their commission? NO. Don’t do that. You made an agreement with them. But what you can do is you can set minimum performance standards on them now. So you go back and you go “hey, here’s the thing…I’m paying you 70%. And I want to grow this business. I want to grow this team and I want to make it even better than it already is, but I need some funds to be able to do that. Now I’m going to honor your 70% split. Anybody new that comes on to the team is going to be put at 40%. I’ll keep you here, but you must produce at this level. If you don’t, I will drop your commission. Sound fair?” And they are going to go “No.” And you’re going to say “Great! There’s the door. Because this is where we’re going. This is what we’re doing now. This is how we’re headed. This is going to be the structure of the team. You need to buy in to this.

Most of the time they are going to go “okay.”  And you’re going to say “look, I’m going to help you do this. I’m going to do everything in my power to help you succeed at this level, but if you can’t hit this level, I can’t grow this team and I can’t continue to pay you what you’re being paid, but I will honor it, as long as you meet minimum production standards.” And if they don’t want to do it, you can escort them out and you can rebuild the team. People think that just because they are on the team you have to keep them there. Sometimes it’s best to blow the whole sucker up and start over. It absolutely is.

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  • N5835

    I am a buyer agent as well as a selling agent and believe me my brokerage firm takes a hefty cut out of my commissions. I do not get to put the full 50% in my pocket. If there are agencies that do this, could you please name them?

    • CanTeam

      I run a team and run the 50% split model, we cover all of the agents expenses, brokerage monthly fees, brokerage commission splits, all marketing including open house signs, for sale signs, lockboxes, feature sheets, business cards, house photography, and we even include a laptop when they join, we provide all admin support and all lead generation. I have found that this works amazing and everyone wins.