Profile: From Commissions to Salaries--Realty USA's Experiment One Year Later

April 1, 1996

Senior vice president: Joseph Silvey
Location: Clifton Park, N.Y.
Size: 400 salespeople

"It all came down to hard, cruel numbers," says Joseph Silvey, senior vice president of Realty USA, a 10-office company in Clifton Park, N.Y. "After losing more than $100,000 in six months, with no optimistic signs in the near future, we said, 'Hey, guys, this is crazy. Let's just face facts and pull the plug.'"

Silvey's referring to his company's experiment with paying salespeople by salary rather than commission, a concept his company implemented last year at one of its offices and shut down just six months later.

He's had nine months to reflect on the failed test, and despite the financial punch his company suffered, he's still positive about the concept. "It was poor timing on our part to be losing money, losing money, and losing money in a market that hadn't hit bottom yet," Silvey says.

Realty USA's market is New York's capital district, which has been hard hit by government layoffs and the retrenchment of GE, a prime employer in the area. "We decided to pull the plug, but not because we don't think the idea has merit," Silvey says. "Our timing just left a lot to be desired. In 1990 our market had about 10,000 title transfers, but we're barely going to reach 5,000 this year."

Silvey says he'll implement the plan again if his market improves. And he thinks brokers in healthier markets should consider the concept, too. "It has been tried in the United States and failed. But in Australia a growing number of companies are going to a salary-based method of compensation. We decided to go there and find out why Australians were getting as much production with a five-person salaried office as we were getting with 30 salespeople in an office."

After his trip down under, Silvey learned that one reason the concept has failed in the United States is that, in most instances, brokers have tried to convert salespeople from commissions to salaries. "We started with new salespeople, and at one time we had seven or eight salespeople who were on a base salary of $300 per week but who could earn bonuses and commissions depending on their production," Silvey says.

"Salespeople were eligible for medical benefits and other basic perks," he explains. "They also had two full-time, salaried managers and a full-time call coordinator. They were very well pampered, and that's part of the system---to take all the paperwork out of their hands and keep them face-to-face with prospects."

Might the salary have been too low? "It could have been," he concedes. "But I don't think that was a deterrent. Most of the people we hired were planning to come into the business but needed some income to meet their expenses. Granted, $300 per week doesn't get you very far today. But it was enough for those salespeople. I don't think we would have problems today, nor did we have problems, finding people who'd start at that level."

If you're intrigued, consider Silvey's tips:

1. You need a manager who has a different mentality than one who's managing independent contractors.

"Branch management is key to our business," Silvey says. "Managers of independent contractors are laissez-faire because they can't insist that independent contractors do anything. That mentality wouldn't succeed with salaried salespeople."

2. Start with new salespeople who have a track record of success in previous work.

"I still believe that's the way to go, because new salespeople don't have any preconceived ideas of the business or commission sales," Silvey says.

"Our plan was to eventually convert salespeople to commission because they could do much better in the long run," he says. "We thought that by offering salaries in a slow economy, we could recruit good people and train them well because we were dealing with so few salespeople.

"They could develop tremendous skills to bring to our traditional business. We'd just keep pouring new people in and bringing them out at the other end, fairly seasoned with great skills. They'd have been in great shape at one of our traditional offices."

3. Keep the salaried office separate from offices in which you pay salespeople commissions.

"A salaried plan shouldn't be part of an existing office. Blending the two would be very difficult. It's like having a 100 percent commission operation within an office with graduated commission levels." Silvey says. "I don't think it works."

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