Magazine article Journal of Property Management

Has Compensation Become a Juggernaut? an Increasingly Competitive Real Estate Industry Demands Companies Adapt to Changing Employee Compensation, Benefits Needs

Magazine article Journal of Property Management

Has Compensation Become a Juggernaut? an Increasingly Competitive Real Estate Industry Demands Companies Adapt to Changing Employee Compensation, Benefits Needs

Article excerpt

In today's changing, challenging and increasingly uncertain times, real estate firms are faced with often complex and difficult decisions about which strategies and tactics to deploy to improve profitability. Boards of directors and CEOs of real estate organizations search for answers to improve performance. Business unit leaders seek ways to uncover new development and/or acquisition opportunities, improve occupancy levels, reduce operating costs and increase net operating income. On-site personnel are focused on reducing costs, improving effective rent and minimizing mistakes that could impact current or future tenancy. However, despite the incredible diligence and leadership expended, real estate firms nationwide are acknowledging that the performance and profitability goals and expectations cannot bemet without outstanding talent.

Recent studies indicate that the rules of employment and the nature of compensation are changing dramatically. Gone are the days of hierarchical organization structures with siloed departments. Gone are the days when real estate companies could neglect annual performance evaluations, offer 100 percent discretionary bonuses and make personal and professional training optional. Rapidly disappearing are employer/employee relationships based on controlling levels of authority. Company loyalty is being replaced by employee dedication to career development. Traditional compensation structures are being supplemented by signing bonuses, achievement bonuses, profit sharing and myriad long-term incentive structures. Executives of real estate organizations have discovered their compensation programs, unless updated in 2003, are likely to be in need of a major upgrade.

The primary driver of employee satisfaction, performance and retention, according to a recent CEL & Associates, Inc., survey of employee motivations within the real estate industry, is employee recognition and rewards--in short, compensation. Employees within real estate organizations throughout the United States are increasingly dissatisfied with their level of pay, their incentive program and the manner in which the overall compensation program is structured and administered. According to the survey, only 42 percent of employees within real estate organizations are satisfied with their current level of compensation. This dissatisfaction is contributing to the current 30 percent overall employee turnover level within the real estate industry's upper percentile. Nearly 61 percent of job seekers expect their salaries to increase when they start a new job, according to a recent New York Times study. Compensation has become a juggernaut, forcing real estate organizations to modify, adjust and react to a growing number of employees who perceive themselves as free agents.

According to CEL & Associates, Inc.'s recently completed 2004 National Real Estate Compensation & Benefits Survey, there are nine major trends that every real estate organization must be cognizant of and respond to, including:

Pay Increases Nearly Double Rate of Inflation

According to the survey, overall pay increases in 2004 are likely to be 3.5 percent or approximately 1.75 to 2 times the rate of inflation. While pay levels have generally risen 1.5-2 times the rate of inflation during the past five years, the trending data appear to indicate that this will continue during the remainder of the decade.

Bonus Realization on the Rise

Employees in 2004 will likely be receiving 81-86 percent of their targeted bonus amount. This is an increase over 2003 figures and, while below the 1990-2000 average of 85 percent, it appears bonuses will continue to be a necessity driven by retention, not performance, decisions. …

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