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Greg Paterson, Rewarding Productivity without going broke


Greg Paterson, Rewarding Productivity without going broke

I recall about 15 years ago, I was talking to a real estate agent in Batemans Bay who had become disillusioned with his life as an agency owner. He made the somewhat startling observation that his salespeople were ‘taking home more money’ than he did! His house was mortgaged against the business, his personal income was diminishing yet several salespeople he employed were regularly receiving commission cheques in addition to their statutory entitlements including a weekly wage and allowances.

I found the agent’s comments not only disturbing but also inexplicable. How was it possible that a person who had his ‘home on the line’, who had invested significant emotional and financial capital in establishing and growing a business which in turn enabled several salespeople to enjoy a comfortable lifestyle, could himself now be faced with a financial struggle to survive? Clearly something was wrong!

With this agent’s words ringing in my mind, REEF set about reviewing and re-assessing how real estate principals reward the productivity of their salespeople - after all, most principals would regard the real estate industry as being ‘incentive driven’. We were anxious to find out whether the commonly used incentive-based systems - debit/credit and target - were still meeting the dual objectives of maximising an employee’s sales performance and providing good business outcomes.

Without going into detail, the debit/credit or target based commission systems, reward salespeople solely on the basis of individual performance. These systems do not take into account the financial position of the business. This can rise to an inequitable situation where the top performers in an office continue to receive significant commission payments, while the business owner nurses a balance sheet on the edge of the abyss. This is the major failing of these traditional commission arrangements. What should be remembered is that in any successful business, employee remuneration must be derived not from business income but business profit.

If we accept this premise, any commission arrangement for an individual salesperson might more properly be focused around the “profit” generated by the whole sales team.

Following REEF’s review into commission arrangements all those years ago, an alternate system of employee remuneration was unveiled - the Business Affordability Model (or BAM for short). In brief, under BAM, the agency determines the business “break-even point” over a designated period (usually a quarter) - the break-even point is the point where the agency (either as a whole or for the “sales” profit centre) has covered its cost of operation. Until the total commission generated by all salespeople exceeds the break-even point, no commission is paid to any salesperson irrespective of individual performance. If the breakeven point is exceeded, the employees share in the excess in the proportion that has been determined by the employer e.g. 60% to the business and 40% to the employees. The amount received by each salesperson from the 40% profit share pool will vary depending upon his/ her contribution to it.

While BAM was controversial at the time because it challenges an agent’s preparedness to confront the inevitable commercial pressures against moving away from traditional commission arrangements, it was designed to assist a real estate business balance competitive pressures on the one hand, with the need for sustained business profitability on the other. There is however, one thing that just doesn’t seem to change - working out an appropriate way for an agency to share its business success with employees is both challenging and demanding of a change in mindset!


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Greg Paterson, Rewarding Productivity without going broke