Compass has grown rapidly by offering agents shares in the company and in some cases cash. But the company has now cut those perks as the market slows.
In a major pivot, Compass announced Monday that it is ditching some of its signature recruiting perks that potentially enriched agents and helped the brokerage grow into the largest company of its kind in the U.S.
The move — announced Monday during Compass’ earnings call with investors — means new agents at the brokerage will no longer be offered either stock options or cash to come on board. Chief Operating Officer Greg Hart said on the call that equity incentives, or in other words shares, ceased two months ago. Financial incentives ended last week.
Additionally, new Compass agents will be required to use the standard commission split the brokerage offers for a given market. Standard splits at Compass vary from market to market, and the company told Inman in an email Monday that they are “in line with other luxury brokerages.”
Hart explained the new commission policy on the call Monday by saying that if a new agent comes to the company with a split that is better than what Compass offers, they will be allowed to keep that split for one year. After that first year, the agent will then go to Compass’ standard split for the area.
The policy only applies going forward, meaning current agents who joined with individualized commission splits will be allowed to keep them.
Hart said he expects the commission policy to have little impact on recruiting, saying on the call that the vast majority [of agents] came to Compass for either the same split,” or from one that was less favorable for them.
Compass also doesn’t expect the incentive changes to significantly impact recruiting. Hart said on the call that agents have continued to sign up even without stock and cash incentives, and CEO Robert Reffkin said agent retention is still above 90 percent.
“Retention improved quarter over quarter,” he added on Monday’s call. “There’s no sign that retention isn’t incredibly strong.”
In addition to the changes to its incentive and commission programs, Compass also said during Monday’s earnings call that it is not currently looking to expand into new markets.
All these policy changes come amid a rapidly shifting housing market. The market has seen mortgage rates spike and home sales slow. Reffkin was up front about the shift Monday, saying on the investor call that “never in my time at Compass have we seen such a big downturn in such a short time.” He also described the future as uncertain and outlined a cost cutting effort that has so far included hundreds of layoffs.
Compass executives expect to save $320 million as a result of the cost reduction program, and Reffkin said on the call that he expects to have positive cash flow by next year.
Still, the changes to the recruiting incentives and commission splits will raise eyebrows in the industry. Reffkin cofounded Compass just a decade ago, but the company’s aggressive recruiting tactics — enabled in part by backing from powerful venture funds — quickly catapulted the brokerage to the top tier of the industry. By this spring, Compass was so big that it managed to dethrone Realogy as the largest brokerage in the U.S. by sales volume.
The rapid growth and aggressive tactics also earned Compass many rivals and made it the subject of a number of lawsuits.
Offering stock was also a somewhat novel idea. Though companies such as Keller Williams have long offered revenue sharing programs, newer upstarts including Compass and eXp Realty went further by directly giving their agents shares that could be traded on the stock market. EXp still provides shares to agents, though in general such programs have likely lost some luster this year amid long-running malaise in the stock markets.
In any case, Reffkin indicated Monday that he believes Compass can continue to grow even without offering lucrative on-boarding packages to agents. Among other things, he noted that “our retention numbers always showed us that we have strength, that we had more strength than the incentives we were offering.”
He went on to say that due to Compass’ agents professionalism, he also doesn’t expect mass departures as the housing industry languishes in the current downturn. That point could be critical going forward, as Reffkin indicated during Monday’s call that its unclear when the current downturn will end.
“Given that the agents we hire are real professional agents,” he added, “they tend not to leave when the industry is challenged.”