I’ve had the privilege of looking under the hood at dozens of lenders’ compensation plans over the last three years, and if there’s one thing I’ve learned, it’s that both the plans and associated processes are complex — especially at independent mortgage banks.

Here, I explore what makes compensation particularly complicated for IMBs and offer three key considerations for improving the process by automating compensation calculations.

What makes Independent Mortgage Bank comp plans different?

Complex comp plans aren’t unique to IMBs — I’ve seen them at depositories and credit unions, too — but they are certainly prevalent at IMBs. The competition for top producers can be especially fierce at IMBs, where there are no ancillary lines of business to bring in revenue.

Maybe that’s why IMBs seem quicker than bank lenders to make concessions with negotiating compensation plans and can have nearly as many unique compensation plans as loan originators.

Compliant compensation plans don’t mean easy to calculate

Having a lot of comp plans is not necessarily a terrible thing — as long as IMBs understand how their compensation structures affect back-office operations and, in turn, the LO experience. Just because an incentive plan is compliant does not mean the payroll team has the data, tools, or manpower necessary to efficiently and accurately calculate the associated commissions on a month-in, month-out basis.

This breakdown in communication between hiring managers and compensation administration teams often pushes IMBs toward one of two extremes:

  1. Suffer through a commissions reconciliation process that is time-consuming, resource-intensive and error-prone, or
  2. Restrict incentive pay to a single plan or small set of plans, thereby limiting the company’s ability to make competitive offers to desirable job candidates.

Fortunately, IMBs don’t have to operate at either of these extremes. By automating compensation plan management, IMBs can calculate commissions automatically in near-real time instead of waiting to reconcile commissions at the end of the month. IMBs that take this approach get to enjoy a range of competitive advantages, including these three key benefits:

1. Efficient and happier back office employees

Creative compensation plans can leave payroll struggling to know where to get the data needed to calculate commissions earned. Manually merging data sources and conducting unique calculations for each LO requires a ton of manpower — and creates a lot of opportunity for errors.

Automating this process greatly reduces the back-office resources required each pay cycle and can even help you save on expenses related to correcting and re-issuing payments. And as payroll morphs from a mad-dash fire drill to a structured process focused on review rather than calculation, the back-office team will appreciate having a greater work-life balance and fewer restrictions on time off during the payroll cycle.

2. Motivated production-driven loan originators

The goal of a tiered commission plan is to motivate LOs to put in extra effort by offering a higher commission rate as they reach predefined milestones. But what happens when LOs don’t know where they stand until the pay period is over and it’s too late? This is often the case when the process is done manually.

By automating the incentive compensation process, your LOs gain newfound transparency into the entire process. When LOs are enabled to see what tier they’re on and what is needed to hit that next tier at any time during the pay period, they are empowered to close more loans. Sharing detailed commissions information as soon as it’s available changes the dynamic between lender and LO; it shows LOs you are rooting for them and it makes them feel appreciated, which in turn, keeps them motivated to do more.

3. More focused employees

When compensation doesn’t add up, employees have to go through all their work for the month and double-check everything. Was the lead source labeled incorrectly? Did the LO forget to assign someone (like another LO or a LO assistant) on the loan? Have they accounted for draw balances?

Reconstructing each loan to identify the error can be like finding a needle in a haystack, especially if the problem relates to a loan that’s several weeks in the rearview mirror. It’s a tremendous time-sink — and frustration — for everyone involved.

By automating compensation and providing a detailed accounting of commissions earned on each loan, as it closes, IMBs eliminate the common and time-consuming LO practice of “shadow accounting,” freeing up valuable hours employees instead devote to closing more loans. When a question arises, you can address it immediately instead of waiting for the commission’s logjam at the end of the pay period.

A recruiting and retention edge

Turnover is high in the mortgage industry, with LOs staying with an employer just 1-3 years on average before they take their book of business elsewhere. Once top producers experience automated compensation, they come to prefer it wherever they work — giving IMBs who embrace automation a serious recruiting edge (more than one lender has asked to demo CompenSafe specifically because a top producer requested it as a condition of their hire). Some IMBs have even used automation to fine-tune the payroll process and begin paying LOs commissions on a weekly basis as an added perk.

When you think about your incentive compensation plans, what are some of your standout offerings? Where are some of the areas you can improve upon the process? By mapping out the departments and personnel involved in the compensation administration process, independent mortgage banks can start to calculate the cost of manual labor and determine if there’s more ROI gained by automating the process.

You can still be creative with your incentive compensation plans without compromising operational efficiency or overtaxing staff. I see it all the time.

Click here to download this free case study of a top-10 lender's that found over $900K in annual savings by implementing CompenSafe