Commissions Are Being Left Out Of The Pay Parity Conversation
Two years into her commercial real estate career, Brandi McDonald Sikes partnered with a senior broker to represent a tenant in an office lease in Dallas. McDonald Sikes, who was not long out of college, said she thought the share of the commission she had been offered didn’t reflect her full contribution.
She asked the senior broker to reconsider, but he refused. She had no options to protest the allocation, she said; the human resources department had no involvement with the process, and the company, which she declined to name, didn’t have standard percentages for different elements of the work.
“It was very difficult to have the conversation with the senior broker and not have that person agree with or recognize the value that you're bringing,” McDonald Sikes said. “When you are in a position where you're not able to negotiate fair compensation, then you either get to decide to remain there, or you have to make a change.”
Commission work draws many into commercial real estate — the “eat what you kill” setup can pay big dividends. For ambitious, hardworking brokers, it can often mean setting your own hours and fat commissions.
But as the industry’s gender pay inequality problem has worsened over the past five years, the commission system has emerged as one of its leading causes — and a target for reform.
“There is this sort of myth that brokerage is all meritocracy,” one female veteran broker said on the condition of anonymity. Bisnow granted anonymity to a number of people to speak freely about compensation at their past or current firms.
When more than one broker works on a deal, the commission is divided up to reflect the contribution of each person. These commission percentages are rarely standardized, and brokers typically sit down to work out the percentages among themselves.
In an industry where the upper ranks are notoriously White and male, broker commission splits on deals are largely determined by senior brokers without supervision by HR or company leaders, according to nearly a dozen former and current brokers who spoke to Bisnow for this story. Some companies are exploring avenues to make the system more equitable.
Avison Young CEO Mark Rose acknowledges that the commission system has led to a pay disparity problem in commercial brokerage. He told Bisnow the disparity is particularly evident among the older cohort of brokers, where women are highly outnumbered and less likely to occupy senior roles at a brokerage firm.
“Let's not forget that there are some amazing, top talented, high-producing women in each of those cohort classes,” Rose said. “But in general, the industry has struggled and didn't approach this issue as a systematic issue that they should have, but I think that they are now.”
Women in commercial real estate take home 56% less on average in commissions and bonuses than their male counterparts, according to the Commercial Real Estate Women Network’s most recent benchmark study, released in September.
In what CREW called “a sobering picture of stagnation,” the report found that on average, women are earning 34% less than men across all areas of specialization in CRE — a nearly 11% increase from the gap found in the last benchmark survey in 2015. For fixed base salaries, women make an average of 10% less than men, and at the entry level, women take home 9% less than their male counterparts. Only 29% of brokers are women, according to CREW.
The 56% chasm CREW found in bonuses and commissions might not be fully representative: Only 17.5% of respondents to the survey identified as men, meaning their sample size of earnings data was much smaller than for the female respondents.
In addition, 38.5% of respondents were under the age of 39, and CREW said women in the sample overall tended to have fewer years of experience in CRE than the men who responded to the survey, which could further skew the results. But while the wage comparisons between men and women have limitations in terms of accuracy, Albert Saiz, Massachusetts Institute of Technology associate professor of Urban Economics and Real Estate, who led the team that conducted the data analysis on behalf of CREW, said the findings show credible evidence that pay parity remains a problem in CRE.
For the women who have worked in the industry for years, the empirical data backs up their experience: The commission structure often leaves them taking home less money than their male colleagues doing similar work.
“I believe the system is broken,” McDonald Sikes said.
The Status Quo: How Commissions Are Determined
Most commercial real estate brokers don’t earn a salary. As in many sales-based jobs, they make their living from commissions on either leasing or selling property. Though some may be employees, it is common for many firms to bring in brokers as independent contractors, classified by the Internal Revenue Service as 1099 workers.
When brokers earn a commission, they must first give part of it to their employer. Brokers that spoke to Bisnow said in most cases, that percentage is on a graduating scale; as brokers accumulate more commission volume throughout the year, that percentage shrinks, leaving more money in the broker’s pocket.
The graduating scale is typically part of a predefined agreement with the company, said Jon Silberman, a Houston-based managing partner at NAI Partners, a privately held company with offices in Houston, Austin and San Antonio, operating under the NAI Global umbrella.
At NAI Partners, the graduating scale equation is the same for every broker. Silberman described it as a way to avoid discontent or “water cooler problems.”
“I would say most of the bigger firms, national firms, have standardized all of that,” Silberman said.
Commission splits among brokers are less standardized. After the company takes its share of the commission, the remaining dollars are divided based on what function each broker on a deal has performed to get it closed.
Industry players told Bisnow that generally, the highest percentage is given to the broker who gets a deal signed with a client — brokers must maintain a good relationship with the client during and after the deal has closed.
The remaining functions are related to working on the nuts and bolts of a transaction: research, marketing a property, conducting tours, performing financial analysis, scheduling client and prospect meetings, overseeing deal term negotiations and handling the transaction schedule and documentation.
Seniority can play a significant role in how commissions are split. Brokers with decades of experience have an established book of business and existing client relationships, which are helpful in closing deals. As a result, junior brokers participating in those deals usually take home a much smaller piece of the pie.
“I joke, there's brokers in this business that could still do business on a flip phone and a Rolodex, because they're representing the same clients over and over again,” said Diane Danielson, founder of Future Proof Research Collaborative.
Prior to establishing her think tank this year, Danielson served as chief operating officer of SVN International, a full-service CRE firm.
Hungry junior brokers are encouraged to find and bring in new clients by conducting market research and reaching out to prospects. Though that can pay off in the long run, there are no guarantees, and it could be years before those brokers find big enough clients to start taking home the largest commissions.
CRE professionals from around the country say it isn’t uncommon for junior brokers to be offered inequitable splits on deals or be excluded from high-value assignments or projects, even in cases when a junior broker brought the firm a large deal. At the majority of companies, the financial success of junior brokers is largely dependent on the goodwill of senior brokers who invite them to participate in deals.
“It's very hard to get into this business. And once you're in it, it's very hard to thrive,” McDonald Sikes said. “So junior brokers have low odds of making it long-term unless they are teamed with a senior broker who has a vested interest in their success.”
This can be particularly stark for women joining the industry.
Across the country, women earn a median 81.6 cents to every dollar earned by men, per 2018 data from the U.S. Census Bureau. For industries that are driven by commissions and incentivized pay, the gap is usually wider, University of Pittsburgh professor of Economics Stefania Albanesi told Bisnow.
“It’s hard to argue [in court that] this practice is discriminatory,” Albanesi said. “There is more awareness on the part of employers, and industries more in general, that having explicit discrimination is bad. If it really is so rampant, it is easier to take to court. In ways, [commission disparity] is more subtle. … [You can say,] ‘The commission is X percent. There is no discrimination there.’”
The issue, Albanesi said, is that lack of transparency is a breeding ground for pay inequality. Salaries establish criteria for remuneration, which helps level the playing field. But she said commissions don’t inherently create a gendered pay gap, and salaries won’t necessarily fix it.
“I wouldn’t say, ‘Going to salary might fix it,’ because if there is a practice of discrimination in an industry for whatever reason, then that will be reflected in salaries,” she said. “I think it is harder to detect with incentive pay, so it may be more pervasive or prevalent or harder to rein in.”
Multiple female brokers said it is not so much a lack of understanding about who is getting what — splits are generally known within a team — but rather the inherent power imbalances in a relationship-driven business that may be contributing to the ongoing discrepancy between what men and women in brokerage take home.
“If someone is pulling you into business, it’s really hard to push back hard and say, ‘I don’t think that’s fair, I think I should be getting more,’” said a New York City office broker who asked to remain anonymous. “It’s really hard to have a strong voice, it’s really tricky. That’s not unique to women, but you add in gender and it just exacerbates it.”
The Meritocracy Myth
Bisnow contacted Cushman & Wakefield, Savills, Colliers International, Newmark, Transwestern, JLL, CBRE, Avison Young and Cresa to ask about commission negotiations and whether HR or senior corporate partners had any involvement or oversight in that process. Only Colliers International, Avison Young and Cresa provided information.
“Splits are determined on a market-by-market basis based on the norms in that specific market,” a Colliers spokesperson said in a statement. “Splits become increasingly favorable for brokers as their overall revenue production increases, as is customary within our industry. Top-producing brokers also can receive additional incentives including dedicated support staff and marketing budgets.”
While each brokerage has its own rules and regulations on how commissions are split, there is often a large dose of subjectivity involved, one woman said.
“Sometimes I will see a woman will originate a deal, but their leadership won’t have the confidence that person can fully push it through, so they will push them to bring other people into the deal — namely guys,” the veteran broker said. “I don’t know if guys are pushed to take on others.”
Another broker, who has worked at multiple large brokerages over decades and who spoke on the condition that she not be named, said the way brokerage is typically set up means the rainmakers are getting a cut of everything, even if they don’t touch any element of the deal.
“The team leader will collect the lion’s share of the commission. And then the junior agents will share in what is left, so they will be assigned a smaller portion, depending on the role they played,” she said. “The team leader is always going to get something.”
In big teams, in particular, she said, “someone is always upset.” She does not think, however, that greater use of salaries would improve women’s position in commercial real estate.
At the biggest full-service CRE firms, women may not end up being offered an opportunity to partake in some of the best deals, Danielson said. It often depends on what team a broker is placed with, and whether they receive the same benefit of the doubt and splits as the men.
“Team formation within large firms often follows what happens with all the biases and unintended discrimination factors that happen in the real world,” Danielson said.
“The general consensus is that women are hired for what they've done, but not for potential. So they're not going to get that benefit of the doubt. And when women go to negotiate, if they try to negotiate a higher split, women get punished for asking for more.”
Another Way To Pay
Some firms are turning their backs on commissions, though they are few and far between. Lindsay Ornstein co-founded and leads Transwestern’s New York office, which works entirely on salaries and bonuses.
“The first 15 years of my career was in a commission environment. I know how toxic and debilitating it can be,” she said.
All fees at Transwestern New York go into one large bucket, she said, and performance-based bonuses are handed out twice a year. Transwestern’s national office declined to comment on compensation practices across the firm.
“It is a far more equitable model, it is a nicer way to work, we collaborate internally, we do not compete internally,” said Ornstein, who joined Transwestern nine years ago after stints at The Staubach Co. and Centric Real Estate Advisors. “A win for one is a win for the team. It makes for a happier team and a happier client.”
At Cresa, a global tenant representation firm based in Washington, D.C., the internal Diversity, Inclusion and Belonging Council has a plan it hopes could reshape its junior brokers' first foray into commercial real estate. It has been proposed to the board removing the commission-only structure for entry-level brokers for an as-yet-undetermined amount of time.
The idea is to diversify the talent pool by removing a barrier to entry that could be holding back people of color and women.
“You have folks that are like, ‘Hey, I've got Deloitte and PwC calling me and they're going to give me a salary and a bonus. And you're telling me that I have to come here, and for a year or two build up this network?’ So inherently, you have folks that don't even want to join, because it's commission-only,” said LaMean Koroma, chairman of Cresa’s Diversity, Inclusion and Belonging Council. “We're really looking at a true paradigm shift here.”
But a widespread switch to salary work would be impossible for many large, traditional operations, sources said, as they run on tight profit margins.
“It doesn’t benefit the people at the top to make [the] change,” Ornstein said. “People at the top tend to yield the most power, and it’s a difficult problem to overcome.”
Another method of promoting fairness in pay is to implement standardized commission percentages. Rose told Bisnow that Avison Young has one standardized commission schedule for all brokers. That schedule is adjusted for local market laws and conventions, such as in Boston, where independent contractors must be treated as W2 employees. Consistent top performers may be invited to become Avison Young principals, which gives them a slice of equity in the firm.
If a deal involves a team, partners in the firm, led by HR, will agree to a set of schedules to allocate commissions based on the various functions performed. This process is to confirm what roles are being performed by each participating broker, so that commission allocations are properly distributed. The commission schedule is reviewed by company leadership and HR periodically.
Avison Young Chief Human Resources Officer Pam Mazza said the company has been tracking salaries and commission-based incomes since the beginning of 2015. Mazza joined the firm in mid-2014 as its first CHRO, and she has worked with Rose to implement more oversight of pay at the company.
“We use statistically valid and reliable data to guide our offers of employment,” Mazza said. “We employ these tools intentionally. When you start inspecting those types of things, that's when you should expect to see more parity, and we are seeing that.”
Base salaries at Avison Young are based on market-based compensation for roles, and the data collected by the firm indicates those numbers are equal across genders, Rose said. But on the commission side, there is more disparity.
“There are great inroads, great strides at the younger cohorts, and there's a massive discrepancy in the older cohorts,” Rose said. “Because they've been in the business, they protected their business, they've cultivated a business. And, again, just the sheer numbers of how many men have been in the business at that age versus women.”
Standardized commission allocations aren’t the norm, and some brokers said forcing that framework to apply to every deal would create friction among brokers.
“I think that would create more arguments than our setup,” NAI Partners’ Silberman said. “Because I think then you're getting into a very rigid structure that doesn't allow for differences in deals, and so people are going to be unhappy. Whereas they could have just spent 10 minutes and worked out a slightly different split, and everybody [would] be happy.”
In light of her own firsthand experience with disagreements over commission splits, McDonald Sikes said a standardized commission schedule could have merit.
“It's probably not a bad idea, because it takes a lot of time and attention to negotiate fees among teams, deal to deal. And so if you can establish some level of continuity, then you can focus more on your client, and less on how the commissions will be split among your team,” McDonald Sikes said. “I think it's honorable, as long as it doesn't disincentivize the producers.”
Danielson said the Great Recession dissuaded many people from entering CRE until the economic recovery was well underway. The senior brokers who survived that period are likely to now have the larger institutional clients and are making the big deals.
“I think what we're seeing are commission splits that were negotiated pre-recession, pre-Great Recession, still in place. And I think as the boomers retire out, we're going to see more team commissions … [there’s] going to be a need for some base salaries,” Danielson said. “I feel like a lot of these existing individual split agreements that are currently in the system are going to burn off.”
While there is hope that the retirement of an older generation of brokers could lead to better split opportunities for younger people, McDonald Sikes said the root of the problem goes beyond age.
“There are some very healthy platforms that value their junior brokers and give them real opportunities to grow. And there are others that go unpoliced, where [there’s] arrogance and, you know, just no assistance, and it's just a free-for-all,” McDonald Sikes said.
In setting up her own firm, McDonald Sikes decided to offer junior brokers an “earned-in” salary. Once their total commission volume surpasses the salary amount, junior brokers can pocket any further commissions they make.
“It's to give a junior broker ... enough to live on so that they're not held back by fear and anxiety. And, with a carrot of opportunity from day one,” McDonald Sikes said.
Not all brokers agree the system is broken. Some former and current brokers who spoke to Bisnow said that regardless of age or experience, all brokers have the potential to earn good money, and most CRE firms want to recruit and keep talented young brokers. If a broker isn’t happy with their treatment, they can simply seek an opportunity with another firm.
“I think that the free market minimizes the amount of abuse anybody can get away with. And if there is abuse of a system, I don't think it'll last very long,” Silberman said.
Danielson is optimistic that as CRE moves away from relationship-based or “country club” recruiting and focuses more on attracting diverse candidates from a wider range of backgrounds, the wage gap will begin to close.
“As we get more professionalized, and that's the direction we're going, we will see more standardization, we will see more transparency,” Danielson said. “The women are talking.”