[8 Tips] Bonus Structures for Property Managers That Work

I am regularly asked, “What’s a good bonus system for our property managers?”

I have outlined one that is the easiest to understand, has the best approach and reward, motivating property managers to perform over the whole position description.

But first … here’s what I’ve found that doesn’t work!

1. Maximising and improving fees with current clients. Many companies pay property managers a bonus over and above their salary but this cannot work if those bonuses are incentivising the wrong things.

For example, giving one week’s rent as a bonus for renting a newly listed property. This is a bonus only on a small part of what the property manager does and doesn’t account for what they do as a whole.

Another is paying a bonus on net growth. For example, you get paid $200 per property net growth. The property manager brings in five new properties; however, the sales department sells four properties. The property manager then gets a $200 bonus on one property only as this equals the net growth.

This can leave the property manager justifiably disillusioned.

For a holistic bonus approach and one that rewards performance right across the responsibilities of property management, consider paying a percentage or commission on total fee income, over and above a base salary.

Here are seven tips that will assist you:

1. Consider what you’d like to pay first.

How much is your property manager earning as base salary? Is it $45,000, $55,000 or more per year? Then, how much extra would you like to see them earn per year extra? An extra 5% or 10%? What are you happy to pay as an extra reward for effort?

2. Know your average monthly fee income.

Calculate ALL fees per month. These are your income generating fees and not expense reimbursement income (like key cutting). All fees including management, leasing, lease renewal, monthly admin fees, and anything else that is fee income less GST, and work this out for each month for the last 6 months. Then work out what your average fee income is per month based on the last 6 months.

3. Work out your bonus percentage/commission rate.

Based on your average monthly fee income (less GST) for the last 6 months, how much are you willing to pay your property managers as an annual bonus from Step 1? Now work this back to a percentage.

For example, the rent roll brings in $20,000 on average per month in average fee income ($240,000 per year). You’ve decided you’d like to reward your property manager with $6,000 extra as a bonus per year, or $500 per month. This is 2.5% of the monthly/yearly fee income. You’d then pay 2.5% of the total fee income (less GST) moving forward.

4. Ensure you have Key Performance Indicators in place.

I’ve never believed anyone should be paid more than a base salary just for turning up to work or getting out of bed! Performance bonuses are paid on just that- performance!

Ensure you’ve outlined (detailed) key performance indicators for the main areas of the role across the board; new business, leasing, lease renewals, inspections, rent arrears and routine inspections, etc. Measure them against this benchmark for 3 months and pay once they’ve attained them for at least 3 months. Ensure your benchmarks are also attainable.

5. Explain your bonus in detail.

You will need to know upfront that the bonus structure that you decide upon will provide adequate motivation to your property manager. It will need to be explained including what performance standards they will need to attain to achieve this bonus level and as such – the financial reward attached. Be prepared for the PM to not understand it at first. Be patient!

6. Train on how to get a pay raise.

Ensure you train your property managers on the areas of performance that they need to improve to secure themselves a pay increase.

All of these things will increase their bonus income (and also the company fee income):

   1. No discounting with new business.

   2. Rents are maximised for new and current properties.

   3. Vacancy rates are reduced.

   4. All fees are charged each month and none are ‘forgotten’.

   5. Rent arrears are minimised.

   6. All activities that generate fee income are done on time like routine inspection fees, ingoing/outgoing inspections, lease renewals etc. (if you charge for them).

   7. Becoming more aware of mistaken discounted rates in the system (on system automated fees like management and monthly admin fees), and will look for them to be corrected.

In fact, they will be working towards the same goals as the boss- more fee income for the rent roll, and so everyone wins!

7. Applying penalty rates!

Ensure that with reward comes a penalty as well. If they lose management through negligence this should count against any bonus payable. Work out what annual fee income has been lost, or what you think is fair, and have this debited against any monthly bonus.

8. Considering other staff.

I believe that if a property manager does the hard yards and is responsible for their portfolio, they should be rewarded accordingly. However what about assistant property managers? Instead, you may work out that property managers get 66% of the available commission and assistants 33%. Or with other admin staff, if you also want to reward them, a set bonus amount per month or per year should their performance be reached and maintained.