Unusual compensation set up - is this normal?
Hello Monkeys, long time lurker here. I recently grabbed lunch with my VP and he told me how his compensation is set and it seems way off market, so I wanted to post here and get a broader perspective, especially as I am figuring out if I want to move up in this company. I work at a smaller real estate private equity firm, with total headcount of less than 6. It turns out, entirety of the VP's bonus is directly tied to closing deals and directly sourcing loans. If a loan broker is involved, no bonus, if no closed deals, no bonus. It basically looks like a commission structure. That, combined with a 1099, not W2, seems off to me. Can anyone here at the VP or higher level chime in?
That's quite unorthodox for acquisition/execution roles. More appropriate for brokerage firms.
Those were my thoughts too.
Not so crazy in my perspective. Know many people with bonus tied to production. The fact that no bonus if it’s brokered - that seems out of market. But you need to think of it this way - most real estate firms are small. That means a small fee base. They can’t guarantee high bonuses like the major funds because they just don’t generate the fees. So your vp has high upside, but also high downside.
What would be the high upside? based on acquisition volume, if he sourced all the loans his bonus would still be lower than what i would think is market.
Not unheard of but definitely not the norm.
Not unheard of. I've heard of some people getting a cut of the profit.
I'd rather this set up if my shop had capital and an easy to navigate, consistent IC. You'll make so much more
Not an unorthodox structure for a small shop and likely leads to much higher comp. Once your company grows and can handle the overhead, they may switch to a W2 and regular bonus structure and comp for that position will be lower.
Seems pretty uncommon, and I may be off base in my assumption, but I'm guessing he negotiated it that way. I'm guessing he's banking on the high upside long term and has special terms that would allow him to eclipse what he would pull down by a strict W2 bonus comp structure.
Wouldn't be my choice (would prefer to have at least some downside protection) but for someone with a high-risk appetite and enough savings/low personal overhead, I could see the appeal of the potential outsized returns.
Is he only sourcing debt or is he also doing acquisition/dispo work? Does he come from a debt brokerage background? Sounds like he's lived that commission life before and likes the upside. Maybe the 1099 allows him the ability to source debt for other shops and keep all the commission if the opportunity comes up.
This structure isn't common but that's one of the great things about working for smaller shops in CRE. An experienced individual can be brought in and negotiate their payment structure in a unique way that beneficial to all parties. This might be one of those situations so you should probably ask before making any long term career decisions. If this company likes you then they might be open to a different pay structure with less upside-downside volatility as you move up.
i think he was analyst at a brokerage shop a long time ago. He is involved in finding acquisitions, underwriting, locating loans for acquisitions or refinances in the current portfolio and other various functions in the firm. i don't know the benefit for him being 1099, i don't think he is allowed to find loans for other shops.
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