Example of a Tier Compensation System Structure

I want to give an example of how a tier compensation system for brokers and intermediaries can be calculated. This is how I saw a principal calculate his stack.

Let's use these numbers. This is based off a calandar year from January 1-December 31 for illustration purposes to keep it simple to understand.

1. Amount of financed/sold/purchased up to $999,999.99 is a 3% (300 bps) payout.

2. Amounts of financed/sold/purchased from $1 mm-$4mm is 2% (200 bps) payout.

3. Amounts of financed/sold/purchased from north of $4mm is 1% (100 bps) payout.

Let's say in a calendar year, a broker had the following amounts of investment sales.

First deal in January was $750,000.

Second deal in July was $1,750,000

Third deal in November was $3 mm.

The first deal of $750,000 is calculated by 3%= $22,500. This one is simple.

The second deal is $1,750,000. If we take the first deal and the second deal its cumulative is $2.5mm.

However, YOU WOULD NOT TAKE $2.5MM AND TIMES IT BY 2%.  

What you do is take THE AGGREGATE AMOUNT OF $1,750,000 x .02= $35,000. The reason is because you are CALCULATING THE AGGREGATE AMOUNTS OF THE FINANCING/INVESTMENT SALES THAT BUMP UP THE SALES/TRANSACTED VOLUMES TO THE NEXT TIER.

For the third deal at $3 mm, the cumulative amount is $5.5mm when you add up deals 1, 2, and 3. For the $3mm you times it by .01% and get $30K.

The total commission for this broker is $87,500 throughout a calendar year.