With a potential IPO on the horizon, Compass is again letting agents trade their commission dollars for equity — and potentially reap the rewards of a long-awaited public offering.
Under the terms of the firm’s 2021 agent equity program, Compass said brokers can defer payment on commissions and referrals that will convert to equity the following year. Compass will also match 10 percent of the agents’ investment, according to an internal memo seen by The Real Deal.
“This agent-only program allows you the opportunity to participate in any future growth and success of the company,” the memo said. Agents will not be required to pay an exercise price in order for restricted stock units to convert to common stock in the event of an IPO.
Founded in 2012, Compass has used equity and other financial incentives to recruit top agents over the years. But it’s only allowed agents to defer commissions since 2018.
That year, the company said it granted $20 million in stock options to 1,200 agents enrolled in the program. Last year, it was on track to grant $50 million in options to 3,000 agents. It currently employs 18,000 agents around the country.
Compass declined to comment.
Last year, the brokerage sweetened its agent equity program to make it easier for agents to cash in on shares, in particular by shortening the vesting period to one year from four years.
The 2021 program is structured the same way, though the strike price is fluid pending a public offering.
According to the memo, agent stock options will convert to equity in the first quarter of 2022. At that time, Compass said it would calculate the number of shares an agent gets by dividing their investment by a “reference price” of $154.27, the value of Compass shares in its most recent funding round in July 2019. At that time, Compass was valued at $6.4 billion.
But if Compass is publicly traded at that point, the reference point will be the trailing 10-day average closing price, the memo said.
In the memo, Compass laid out a scenario where an agent earning $100,000 in commissions invests 20 percent, or $20,000, and Compass contributes another 10 percent of that for a total of $22,000. Based on a $154.27 percent price, the agent would own 142 shares.
Having raised $1.5 billion from investors, including SoftBank, Fidelity and Dragoneer, Compass has been the subject of IPO speculation for years. Compass recently hired Morgan Stanley and Goldman Sachs in anticipation of a potential public offering.
In a recent memo to agents, CEO Robert Reffkin did not mention equity, and he said he could not comment on the timing of an IPO. “But being public will allow Compass to raise capital that we can invest in more tools and more support to help you,” he wrote.
Tech stocks have been hot in 2020, fueling IPO fever. This month, Airbnb raised $3.5 billion in a public offering that valued it at more than $100 billion. Prior to the IPO, early employees pressured Airbnb to go public so that they could cash in on options set to expire starting in late 2020.