The competition for top loan originator (LO) talent is fiercer than ever, and often compensation is a lender’s best bargaining chip. But with margins as tight as they are, lenders must strike a balance between crafting attractive compensation packages and ensuring compensation aligns with LO contribution. Some lenders are turning to retroactive comp plans to offer an attractive payout curve that incentivizes top performers while keeping compensation commensurate with output.

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:

Tiered compensation plan example

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.


Fig. 1: LO Commission Payout Comparison - Retro vs. Non-Retro Comp Plans

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.


Fig. 2: LO Commission Payout Comparison - Retro vs. Non-Retro Comp Plans (long view)

Retroactive tiering does not have to be based on loan volume as in the above example. We have seen lenders structure plans based on dollars, both dollars and units, the better of dollars and units and even profit and loss (P&L) performance.

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.