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.

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