Incentive plan for our Property Manager

We have an onsite, independent property manager. His current annual bonus is based on rent generated for the year. But this does not incentify him to keep costs down and improve the bottom line. Does anyone have a bonus plan based on bottom-line profitability, rather than top-line rental income? Thanks

It is good you want to tie your team to performance. Let's expand on this a little bit before we provide suggestions.

Is it a team onsite that includes maintenance?
Does your maintenance perform work orders AND unit turns? How much of the work associated with unit turns is done in house?
Does your property manager have any input as to what goes into the annual budget?
Does he understand the budget?
Do you give him authority to renegotiate contracts with existing vendors, or bring in new ones if money can be saved in the process?
If your team has a maintenance staff, do you reward them for safety?

I would advise you to offer Bonuses paid on a quarterly basis and this should be tied to performace goals. For example, occupancy, receivables, budget adherence (variances) and number of renewals achieved. However, Johnny has a point: is your Manager a part of the budget creation and does he have the ability to negotitate or at least initiate a bidding process for contracts such as trash removal, call centers, advertising (Apt. Guide; For Rent, etc.)? I would also advise you train your Manager on cost effective turns, lease expiration management and revenue management procedures which all tie into profitability.

Incentives do not always work with certain people. I might suggest that alternately, you reduce it to a baseline amount per lease / renewal and do so on a quarterly basis. If this employee wants the bonus, they must submit the figures and do the math. If not, then, well, no Bonus.
If you continue to see no positive change, then I'd suggest doing away with it.

Hi John,

I just shared this incentive program in another post, and believe It could also work for you. See below.

A typical onsite Manager for 136 units makes around $40,000 to $45,000 a year in a good market. Some markets can make as low as $35,000. But for this example we can use the strong markets benchmark of $40-45k. If you offer the community manager a base salary of $20,000 a year, with incentives of additional $30,000 a year, than the manager can make up to $10,000 above the market by simply performing to standards you have established for the community.

Based Salary $20,000 Yearly
Leasing Incentive $10,000.00 Yearly
Financial Incentive $20,000.00 Yearly

The leasing incentive can be established by creating a month to month leasing plan, of which you breakdown the annual incentive amount ($10k) to a monthly amount ($833.33). The monthly amount can be earned by meeting that current months leasing goals detailed in the plan. Each month that they reach the leasing goals, each month that manager receives the incentive.

Same thing with the financial incentive, you create a budget for the year and use the same steps as the leasing incentive with the financial. Each month they meet their budget, they receive their monthly incentive.

This will not only forces to the manager to meet their goals, but will motivate them to do better each month so they can eared that additional $10k a year.

Hope this helps.

Sincerely,
Pedro

The company I work for offers leasing bonus' and rent collection bonus. If all the rent is collected and banked by the 4th, I get a bonus. Leasing bonus are the difference between the old rent rate and the new rent rate. There is so much PPW involved that I'm too busy/lazy to submit for them.

A profit sharing plan would be nice, I came in 27K under budgeted expectations last year!

Your suggestions are all well and good, Pedro; but what if the property is maintaining a high 98% occupancy? The manager is clearly spending his time and resources more wisely and concentrating on retention rather than capturing new leases; and those he loses are for reasons he cannot predict, prevent or control. These reasons can include, but are certainly not limited to:

1) Loss of income.
2) Change in household size to such a point that they exceed occupancy guidelines.
3) Change in employment location such as to make commuting a burden (this includes extended military deployments or transfers).
4) In the case of senior housing; residents often develop situations where they can no longer live independently (in this case offer to allow a live in caregiver as a reasonable accommodation); or worse, death.


If the manager is maintaining the high occupancy, it is clearly indicative that he is able to replace the residents he is losing so as to minimize loss to vacancy and understands that it is far more effective to concentrate on resident retention. We all know that it can cost as much as 7 times more to turn and market a vacant unit than it does to offer services and programs that make it so that residents are more willing to stay for a longer term.

I would change the 'leasing incentive' to an 'occupancy incentive' and tie it to maintaining a minimum occupancy level on a quarterly basis.

I would increase the financial incentive to include a percentage of each dollar saved to the bottom line. In my case; I was able to save about $40,000 by changing how a couple of line items were handled and renegotiating contracts with some service vendors:

1) I was able to get funding for a one time capital expenditure that allowed me to:
- Change all locksets to the SmartKey system. This virtually eliminated the need to physically change the locksets at unit turn, unless there was a damaged cylinder. With the Smartkey system, a lock change only took 30 seconds and did not require anything more than a provided tool, a working key, and a new precut key (which I recycled and randomized the old keys for future use).
- Invested in window covering film to reflect outdoor heat and maintain indoor heat for windows in the path of the sun.
-Invest in new landscaping that did not require as much water, and could thrive in the cold winters as well.
2) I was able to renegotiate contracts with service vendors. A few examples include:
-Landscaper for seasonal billing (meaning a higher cost in the summer months, and a lower cost in the winter months; these amounts were averaged and we used the average for a monthly cost).
-Pest control to include a 100% semiannual treatment with a local exterminator for less cost than the national name brand; we were able to quickly identify and treat any future infestation before it became a problem for the entire property.
-Elevator maintenance was put on a 3 year contract that included all parts and service for repairs that cost less than all the service calls for the prior 12 months combined.
-Office communication; I terminated the local phone company and went cable for office phone lines (main line phone, fax, security monitoring, fire monitoring, and emergency line for the elevator); they also took over office internet and provided free wireless access to the entire property.
-Trash collection; I renegotiated the contract to include a quarterly roll off bin for residents to use when disposing of large items, went to a 3 year contract and got a free month for about 40% savings monthly.


In order for the site manager to be successful; you need to give him the authority to review and renegotiate contracts. You also need to work with him to make sure he understands the budget line by line. Make him accountable to explain unfavorable variances.

Rose -

Would you be able to further elaborate your incentives for collections. We're interested in doing this as well.

Thank you,
Shannon

Mindy -

Do you have an example of what your bonus structure looks like, especially for receivables?

Thank you,
Shannon