Retroactive comp plans offer sustainable approach to rewarding top-performing loan originators
A retroactive comp plan is a variation of the widely popular tiered commission structure. Tiered commission structures use rate schedules to define how much commission LOs will earn for each loan closed during a performance period based on metrics like number of units closed or total loan volume produced.
In a non-retroactive plan, loan commissions for the first few loans of the performance period are paid out at the Tier 1 rate. Once the LO achieves a target number of units or total loan volume, subsequent loans are paid out at a higher Tier 2 rate, and so forth. The total number of tiers and overall shape of the payout curve can vary widely from one plan to another.
In a retroactive plan, by contrast, all loans are paid out at the highest tier achieved by the LO during the performance period. Producers have the potential to earn more under a retroactive plan than they would under a non-retroactive plan, which incentivizes the higher production lenders need to drive profitability. And because retroactive max out at about the same rate of pay as non-retroactive plans, they avoid the “runaway compensation” issues lenders face with more open-ended plan designs.
For example, let’s say Olive Originator has the following 5-tier comp plan:
Let’s assume Olive closed loans totaling $2 million last month. If the comp plan is non-retroactive, Olive will earn $16,250 in commissions. If the comp plan is retroactive, Olive will earn $20,000 in commissions — a 23% increase.
The following graphs illustrate how retro and non-retro plan payouts compare for a lender using the 5-tier structure described above.
It’s easy to see that LOs in a retroactive plan will experience a significant “step up” in commission earnings as they achieve each successive performance tier (Fig. 1).
A longer view (Fig. 2) illustrates that LOs will achieve maximum BPS more quickly with the non-retro plan, after which point BPS will remain flat. The non-retro plan, by comparison, has a more consistent curve. Eventually, the two payout curves approach one another.
If you are looking for a compensation platform that can keep up with your tiered commission structure — retroactive or not — we’d love to talk more about what CompenSafe can do for you.