Is Your Bonus System Hurting You?

Funny thing about bonus systems —you often get exactly what you incent. Now that doesn’t mean you get what you want. It means you get what you incent. So here are a couple of pet peeves of mine that I’'ve seen w.r.t. bonuses in multi-family that at best just waste money but at worst actually hurt our pricing and revenue management efforts:

The longstanding vacant bonus

There are various versions of this, but the simplest is a company that regularly (maybe even by official policy), puts an extra $25 or $50 leasing bonus on units that have been vacant more than a certain number of days (usually something like 30 or 45 days). There are two real problems with this form of compensation:

1. It may miss the entire point of why the unit isn'’t renting. Is there an issue with the make ready? Is there a feature about the unit that makes it less attractive and thus should be recorded as a “negative amenity”? Has the unit been leased and canceled, so that it really hasn'’t been on the market that many days?
2. This kind of bonus tends to become a self-fulfilling prophecy. If I’'m a leasing agent and I know (or just expect there’'s a good chance) that a unit will have a leasing bonus assigned to it in a few days because it’s been vacant 27 days, then I may just avoid showing it to a prospect until the 3 days pass. Then, bingo! I show it, lease it and get an extra bonus —just for waiting a couple of days.

You should have a protocol on how to deal with longstanding vacant units (more on that in my next blog). And IMO, a leasing bonus shouldn’t be on the list.

Renewal bonuses for the whole team

I’'m all for renewals. And I’'m all for recognizing that the service team contributes to renewals. The challenge with the way renewal “team” bonuses typically get implemented is that they dilute the value of the bonus to the point where the company pays the bonus but doesn’'t really get much behavioral change.

Imagine that I give my leasing agents $100 for every lease. Further imagine I have 50% turnover and that I want to bonus renewals to motivate (and reward) behaviors that help with retention. So I'’m willing to also invest $100 per renewal. On the new leases, I set up the system so the selling agent gets the bonus and no one else. After all, sales is largely a salesperson-to-prospect activity, so I want to motivate that individual sales effort. Makes sense, right?

But on renewals, I realize that it’'s really a team effort. So the $100 for each renewal goes into a pool that is shared by the leasing AND the service teams. I may even include the bookkeeper. She kept all the records straight which contributed to the residents’ hassle-free experience with us, right?

It all makes sense. Except now the value of a renewal to any individual is only about $20, not $100. And since it’'s all shared, there’s really no one who “owns” making the renewal happen. If I’'m a leasing agent, I’'m going to put my time and attention to earning the $100 and any $20 “wins” are just icing in the cake. If I’'m a service person, I’'m grateful for my renewal bonus, but I don’t feel a personal connection to making it happen.

So if you want to bonus renewals, you'’re going to have to put more into the pool to compensate. Better yet, why not incent the service team on the upstream metrics that drive renewals —time to close a ticket, % of tickets truly closed (as judged by an independent call back to the resident asking them if the issue is closed).

As I said, I’m all for rewarding our teams. Let’s just make sure the money spent gets us the behaviors we want.