Top Three Compensation Challenges for the Real Estate Sector

December 05, 2022

By Ryan Funsch and Ralph Estel

The real estate industry, like most sectors, is heavily dependent on management and staff to be successful. Although managing and engaging employees has always been a challenge, the post-pandemic landscape has exacerbated those challenges and created new sound bites like “the great resignation” and “quiet quitting.” And with an extremely tight job market, employees want flexibility, the option to work from home, and many other (often unique) benefits. At the same time, compensation remains a critical component of attracting and retaining talent. A compensation structure that is competitive and reflective of the specific market(s) in which a company competes for talent will provide a valuable tool for making defensible, equitable compensation decisions.

Creating the Most Effective Reward Strategy

In addition to base salaries, professionals in the real estate sector typically receive incentive compensation for various business-related transactions (e.g., residential and/or commercial sales, leasing, financings). These incentives may be structured as commissions, bonuses, stock-based plans or prizes. The amount of incentive depends on the company’s reward structure. Real estate companies should consider using published compensation surveys to identify market competitive pay—both base salaries and incentives—across their peer companies. Periodically evaluate the distribution of fixed (base salary) versus variable pay (incentives) across all position levels and departments to determine whether it is effectively motivating employees and supporting the company’s strategic plan. Companies may consider using salary surveys to evaluate the market every two to three years to ensure they are paying their employees competitively.

Developing a Compensation Philosophy for Different Markets

Work location proves to be one, if not the biggest, challenge for companies regarding compensation philosophy. Cost of living varies widely from coast to coast, with almost a 25% difference from the national average to New York City or Northern California’s Bay Area. Impacting factors for real estate professionals when considering competitive compensation levels extend beyond geographic areas. The types of real estate developers are building, selling and/or leasing also impact compensation levels. Companies in the industry are paying higher salaries and commissions for talent who sells and/or leases luxury condominiums, apartments, townhouses and so on. The appropriate ratio of fixed-to-variable pay is important for those engaging in high-value services.

Navigating Talent Acquisition Challenges

The Covid-19 pandemic and the Great Resignation have forced businesses to take a fresh look at their compensation philosophies and talent acquisition strategies to ensure they are hiring the best candidates and retaining current talent. If your company is having an issue attracting talent, consider providing a sign-on bonus with a “minimum stay” component. This approach may entice candidates, keep fixed costs down, and encourage new employees to remain with the company for at least a year. 

The best ways to ensure that your company has the most effective compensation policy are to utilize objective salary benchmarking surveys; evaluate the external market and the internal environment; and consider creative, meaningful design components to attract and motivate your valued employees. 

About Ryan Funsch

Ryan Funsch is a Senior Manager with Compensation Resources.

About Ralph Estel

Mr. Estel is a Senior Manager in the Private Client Services Group with over 10 years of experience providing accounting, consulting and tax services to middle-market clients. His clients include real estate and construction companies.

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