Compensating and Rewarding Your Managers

Creating Defined, Measurable and Achievable Incentives

by Karen F. Aroian

What motivates us to reach a goal or exceed expectations? Our behaviors are rooted in a complex combination of internal and external driving factors.

To be sure, one factor that motivates a self-storage manager is the incentive package, which is why self- storage operations offer property managers additional monetary earnings that are defined, measurable and achievable for the income they generate. To balance how a manager and the market are doing, self-storage owners should regularly review the purpose and goal of the incentive packages they offer.

PROPERTY-LEVEL INCENTIVES

“Bonuses are not an entitlement,” says Tom Maxfield, director of operations for Move It Management, a company which manages 53 properties. “When a manager does something exceptional, you should reward them. Every employee wants to know they’re doing a good job and moving in the right direction. All of us like to have that [affirmation]; it feels good.”

Move It believes all sources of income are relevant to the success of their business because the property manager’s focus and effort influences each area, whether it is the closing rate of reservations to rentals, delinquency collections, rate increases, retail sales per rental, rental truck commissions or tenant insurance.

Move It uses a property-level bonus system based on cash gains collected year-over-year for a monthly reporting period. Their managers must reach a minimum 5 percent of cash gains collected to earn a monthly bonus. Move It then pays an escalating amount up to 10 percent for higher percentages of gain.

According to Revenue Operations Manager Katie Cowen, Move It pays at least 80 percent of the monthly bonus to the primary sales manager and up to 20 percent of the earned bonus to the assistant manager, depending on the size of the operation. A site manager can expect to make $250-$400 monthly or $3,000-$4,800 annually. “We would like the property manager to earn 10-15 percent of their monthly/annual wage in bonuses,” she says.

“If we identify a specific area that needs improved performance, such as higher closing rates of reservations into rentals or retail sales per move-in or percentage of auto-pays, we will create a contest for several stores or for an operating district,” Cowen explains. “These contest periods are from one to three months, and we have a lot of fun with the competition. We normally utilize non-cash awards like gift cards, dinner for two at a nice restaurant or tickets to a concert or athletic event.”

For new properties in lease-up during the first year of operation, Move It looks for a step-up in occupancy each month. Based on expected absorption, they provide the property sales manager with a schedule of expected leases to be obtained for each month. Managers can earn additional income for achieving that monthly rental lease goal plus an additional bonus for exceeding that goal.

Cowen and Maxfield emphasize the importance of two things:  being able to calculate incentives easily and paying on performance since each property generates business from various sources, which managers have the power to influence positively or negatively.

“The data points should be easily identified from the point-of-sale software so the manager, the district manager or the owner can quickly calculate the bonus formula,” Cowen says. “We have found multiple metrics or complicated formulas become a disincentive for the manager because they don’t control the bonus calculation.”

“To be successful,” Maxwell continues, “we have to work hard and earn our business.  When we see exceptional work or performance from a manager, we may give a surprise bonus to that employee. The bonus can be a larger than normal monetary award or it could be extra vacation time like a Galveston cruise or a weekend on the San Antonio Riverwalk. These fun bonuses have proven to be very motivating for our top property managers.”

In addition, Maxfield adds, Move It rewards managers through team building and company recognition. “And, if we observe a hard-working manager who has a yearning to improve themselves, we counsel that employee and support access to academic or self-improvement courses or training. While we expect top performance from our managers, we also care for them as people and coworkers. We have found the ultimate incentive for a property manager is to be appreciated and recognized for the hard work at their properties.”

FLEXIBLE INCENTIVES ON NET RENTALS

Denise Bowley, co-owner and operations officer of Grow Your Storage, LLC, offers the managers at her 10 properties in Texas and Colorado incentives on a combination of end-of-year, performance and special projects.

Grow Your Storage (GYS) structures their performance-based incentives on net rentals. Their bonus structure for special projects varies. GYS informs their staff of their new firm’s annual challenge at the TSSA annual conference and trade show and awards a $500 cash bonus at the conference the following year. This year’s challenge is selling the most merchandise.

However, the purpose and focus of incentives at GYS does change. “We may see the need to lower delinquency rates, obtain online reviews or rent a certain type of unit. For example,” Bowley explains, “if we have a high vacancy rate in a certain unit type, we will challenge the store manager to rent as many as she can within 90 days. I usually let the store manager set the number of rentals while I set the bonus amount. The objective of the bonus is to keep the manager personally invested in the daily operations. The bonus allows them to experience how the success of the business directly results in recognition and reward for the people providing customer service and facility maintenance.”

While the store managers for stabilized facilities do not receive performance-based bonuses, they can earn a special project bonus a couple of times a year. For new facilities, the store manager has an opportunity to earn quarterly bonuses based on performance (net rentals).

Their store managers are paid based on gross revenue. Salary for a 105,000-square-foot facility with a resident manager is different from that of a 55,000-square-foot facility where the manager does not live on site. All “relief” (leasing agents) are paid by the hour and those hourly rates can vary.

In addition, GYS conveys the message that “good things come from working here” by awarding employees with random cash gifts related to life events, whether to help celebrate the graduation of an employee’s child or to help an employee with a needed car repair. “People do not only function in a cause-and-effect system,” says Bowley, who supports bringing “an unexpected, unearned gift to a valuable employee’s life.”

TOP LINE SITE BUDGETS

To successfully compete with REITs that focus solely on call centers, Advantage Storage, with its home office in McKinney, first takes time to hire employees who want the challenge of outperforming bigger competitors in their markets and are naturally goal-oriented. Advantage incentivizes based on performance and supports their high-end managers with the ability to adjust their site rates, to meet with their regional managers on a weekly basis and provides them with the tools needed to manage revenue and earn extra income. Turnover is low with 80-85 percent of full-time employees staying for more than 12 months.

 “We pay our hourly employees the highest in our industry to make sure we get a higher caliber employee,” says Chief Operating Officer Cory Horne, “and to make sure that our properties are managed well, and our customers get the best customer service in our markets.” Advantage’s full-time employees work 40 hours and receive 100 percent of benefits.

Most sites have one full-time manager and an assistant manager. Seventy-five percent of the time, the assistant is a part-time employee, working 29 hours per week. As long as the assistant has worked a full 29 hours during their four-week term within that month, these employees split the site bonus 70/30.

Advantage bases their incentive structure on a 12-month period and solely on each site’s top line budget revenue. As Horne explains, “That's because it’s what managers can control. Each manager and assistant knows what their budget looks like, January through December. We don’t change it mid-stream.”

Advantage uses each month’s figures from the trailing 12 or 24 months to give managers the ability to hit their numbers. “In January, for example,” Horne explains, “if the site manager’s total revenue budget is $50,000, and they meet or exceed that budget, they get $200; if they meet or exceed that number by $2,000, they get an additional $300, for a total of $500; if they meet or exceed that number by $5,000, they get an additional $400, for a total of $900.”

The last part of Advantage’s bonus structure relates to delinquency collections. While the industry standard is 3 percent or below, Advantage holds their managers to a higher standard by awarding bonuses for delinquency rates of 2 percent or less. According to Horne, 98 percent of their managers meet that goal, for which they earn an additional $100. That brings total potential incentive earnings to $1,000 a month when combined with the other incentives. “We do have those who hit that highest tier on a monthly basis,” Horne says. “They’re in higher income, higher density markets, which provide them that opportunity.”

Regardless of the market, Horne believes keeping managers motivated also has to do with how well they are managing revenue, in-place tenants, expiring versus non-expiring discounts along with how closely they look at their market and the competition within that market and adjust their street rates accordingly.

“So, if you’re 98 percent occupied, and you have two 10’ x 10’ units available, those units should be rented at a higher rate,” Horne tells his managers. “Now, if you have 25 5’ x 5’ units available on the third floor, adjust those rates to a lower level to be more competitive in the market.”

Site managers have the flexibility to set rates and the ability to go over that in detail with a regional manager to better hit their bonus goals. Regional managers visit 10-12 locations, at minimum, once a week for site reviews and audits. “We make sure that we’re giving our managers every tool they need to be successful,” Horne says, “because if they’re hitting their bonuses, obviously we’re doing well; the regionals receive a bonus based on their [managers’] bonuses, so they’re motivated as well. It works out well for everyone.

“One other thing we do is give our employees an end-of-year holiday bonus to thank them for the entire year. It also lets them know that staying with us for the full year is appreciated. A lot of our competitors have two-three managers a year. It’s hard to keep someone in place. We feel the holiday bonus shows them our appreciation.”

KEY TAKEAWAYS “You have to be careful not to lose sight of your goals, collections or maintenance of properties,” cautions Amy Nolan, co-owner of The Storage Place. “That’s why we do a combination of things in our managers’ bonus plans to keep all the relevant things front and center.”