Dealmakers who opted into Compass’ much-heralded agent equity program last year are staring at sobering losses — at least on paper.
The program incentivizes agents to defer commissions in exchange for stock, plus a sweetener: a 10 percent match from Compass.
To compensate agents who deferred sales commissions in 2021, Compass logged a $100 million expense in connection with its agent equity program, according to public filings, suggesting that agents forgoed some $90 million in compensation last year.
The value of equity that Compass has issued in connection with the program has fallen by about $74 million as of Sept. 27, an analysis of public filings by The Real Deal suggests.
Institutional investors in the brokerage have lost hundreds of millions of dollars, public filings show. But the material impact of Compass’ plummeting stock price on its foot soldiers — the agents that bought into the dream — was less understood.
Unlike stock-based compensation given as a bonus on top of salary or other earnings, Compass agents who participated in the agent equity program gave up the core component of their incomes (TRD’s analysis excludes the company’s 10 percent stock match).
“Agents have deferred hundreds of millions of dollars in compensation payments through the agent equity program, essentially giving Compass a zero-interest loan, and now those investments are worth pennies on the dollar,” said Mike DelPrete, a real estate analyst at the University of Colorado, who has an investment in rival brokerage Side.
“Real people have been affected,” he added.
A Compass spokesperson dismissed any conclusion about the program as “hypothetical.”
It “assumes all agents have sold at our current stock price, which is misleading as agents who continue to hold shares have not incurred a loss, and those who sold at a price higher than their strike price would have made a profit,” the spokesperson added.
Agents who chose company stock over cash might have struck it rich if the company grew dramatically in value. Before it went public, some expressed hope that Compass would be the next Apple, Amazon or Tesla. But investors have taken a dim view of the company after hype about its technology products fizzled, and seem pessimistic about the residential brokerage space overall, with many of Compass’ rivals also taking big hits to their stock price.
Compass CEO Robert Reffkin noted in an August earnings call that agents had become less willing to subscribe to the equity program. The company expensed just $7.2 million in connection with the program through June of this year, less than one-tenth the 2021 amount.
Reffkin disclosed during the call that Compass will stop offering new agents stock or cash awards toward its goal of eliminating $320 million in spending. The company’s agent equity program remains active, if less popular among agents.
Compass brokers who spoke with TRD remain hopeful that their investments will rebound.
“I think it’s a long term play,” said Ronita Kalra, who joined Compass from Douglas Elliman in 2020. “I’m not very concerned about the day-to-day fluctuation. So yeah, I’m optimistic.” Kalra said she has yet to sell any of her Compass stock.
Terrence Harding, who joined the brokerage in 2016, said he participated in the agent equity program until the beginning of 2020, when his focus switched to cryptocurrencies. He said he has not sold any Compass stock.
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Boris Sharapan Fabrikant said he has bought Compass stock several times since it began declining. No Compass agent that spoke for this story said they had sold.
But commission splits are a big factor in the labor market for real estate agents, and Compass has talked about getting stricter on them.
“Agents are essentially entrepreneurs,” said DelPrete. “They are slippery and hard to hold on to.”
Even as Compass tries to cut back on spending, including issuing equity, its agent equity program is likely to survive.
While eliminating stock and cash awards for new agents may save on costs, eliminating the agent equity program would do the opposite. When agents defer sales commissions, Compass can pay them more slowly — and in stock rather than cash.
“Compass agents are going to get squeezed on all sides as the company looks to change its compensation structure in light of its cash burn and the housing downturn,” said David Friedman, co-founder of the wealth intelligence platform WealthQuotient.
“Capital markets have consistently rejected its valuation as a tech company,” added Friedman, “and a wave of human capital may be about to crash, too.”
Harrison Connery contributed reporting.