An article by Bob Walters

 

Remuneration Models

If you are willing to pay a minimum of $3,000 to buy someone else’s business relationship...why wouldn’t you pay your people an incentive to create your own??

I see many different types of incentive schemes when I am out consulting, the 3 most common are:

1. NONE – it’s their job!
2. 1 weeks letting fee OR
3. A set $ figure per property.

These types of bonus structures for new business, in my view, are flawed, as they provide no incentive for employees to obtain higher fees for the agency or to resist discounting fees.

Guiding Principles

• They will not give you the results you want, just for love of the job
• Everyone in Property Management should be paid on PERFORMANCE
• Reward the PERFORMANCE they can CONTROL and you can MEASURE

If you want to grow the NUMBERS

Current Schemes	Problems
None	You get what you pay for
1 weeks rent	Insignificant – focus on rent amount
$ paid for increase in properties managed	Anything to get the business
$X per property	Allows for / encourages discounting
% of income of Properties Under Management	Focuses on the total income

If you want to grow the INCOME

Current Schemes	Problems
None	You get what you pay for
Set % of arrears reduction	There is a limit – 2% of total income
Set % of management fee income	Can be viewed as "baby steps”
Set % of above-budget performance	“Management can manipulate the outcome!”
Set % of increase in total income	Unlimited opportunity (is that a problem?)

If you want to grow the PROFIT

Current Schemes	Problems
None	You get what you pay for
$ Paid for increase in properties managed	Taking on more properties – reduced service level
$ deduction for properties lost – other agent/ owner managed	“It’s not my fault”
$ deduction for non-recoverable costs due to errors	“It’s not my fault”

Sample Reward Programs

Concept

Each activity relates to the other – new business is not paid until the property is leased, the more good quality properties that are available, the easier they are to lease, lower the vacancy rate and the higher the percentage of fees equates to more management fees collected, increased fees mean you can keep your cost of management to a minimum.

Staff are motivated to complete all facets of their role to the level required and not just the activities they like or generate them more income, because if they exceed (or fail) in one area, all of the others are affected accordingly.

Once staff have been advised exactly what is expected of them and to what level, there is no room confusion, avoidance or laziness. Excuses cannot be justified. Reduce the occurrence of unreturned phone calls.

Sample New Management Incentive Plan

Commission shall be payable from the “contract value” (CV) written per month with respect to new management properties “gained” by you personally in any month. The property is “gained” when a management agency agreement has been signed and the property has been leased.

CV is calculated in the following way:

Annualised Management Fee for the property (excl. GST) + the Letting Fee (excl. GST) charged/shown on the management agency agreement.

For example, if a property is rented at $400 per week at 7% management fee with a one week letting fee the CV shall equate to $1,456 + $400 = $1,856.       

Say, 25% of the CV as a New Management Incentive = $464.

Sample Management Incentive Plan

An incentive bonus shall be payable to the property manager at a rate of 4% of the fee income generated by the individual portfolio.

For example, if the property manager’s portfolio generated $20,000 in fee income for the month, 4% equates to $800 paid as an incentive bonus.

However, the following amounts will be deducted from any incentive payments payable (should they occur):

-       the Contract Value (as calculated above) for any properties lost from management as a result of any mismanagement of the property by the property manager, or

-       any compensation payments made to landlords or tenants as a result of any mismanagement of the property by the property manager.

Sample Leasing Incentive Plan

A sum of $300 per month shall be paid, provided the employee personally leases a target of at least 12 properties per calendar month. A further $25 will be paid for each additional property personally leased by the employee in each calendar month once the minimum target of 12 properties has been reached.