The company is shifting from offering equity stock options to restricted stock units that would vest in the event of an IPO.
Compass is making big changes to its agent equity program, according to an internal memo obtained exclusively by Inman. The company is shifting from offering equity stock options — an option to buy stock in the future at a set price, or strike price — to restricted stock units that will vest under certain conditions.
“This is an exciting change that eliminates the need for you to pay a strike price to purchase your equity,” Compass’ CFO Kristen Ankerbrandt explained in the memo.
A source within Compass told Inman that the vesting schedule is much shorter with the new plan. The vesting schedule was previously four years, but with this new schedule, agents’ stock units will vest either in the event of an initial public offering (IPO), or when the board grants the restricted stock units in 2021.
Once the agent stays with Compass until the restricted stock unit grants in the first quarter of 2021, they will keep the restricted stock unit until they leave. The agent then needs an initial public offering or sale event to happen during the lifetime of the restricted stock unit to be exchanged for Compass shares.
Restricted stock units are sometimes viewed as a way for companies to keep the talent they recruit beyond their initial contracts or signing bonuses. Sources have told Inman that Compass agents sign a two- or three-year deal when they join the brokerage.
Compass has been criticized and even sued for spending big to recruit top talent. In Realogy’s lawsuit against Compass, Realogy specifically pointed to what it says are compensation packages offered to competitors’ employees and agents that are so inflated that Compass is sure to operate at a loss.
Compass first launched its agent equity program in 2018, and had more than 1,200 agents enroll that year, granting more than $20 million in equity. In 2019, the company has more than 3,000 participants and is on track to grant more than $50 million in equity, according to Ankerbrandt.
“This means thousands of you have chosen to actively participate in the future and growth of Compass,” Ankerbrandt said. “This level of participation speaks to our joint commitment to Compass’ future.”
To enroll, agents pick a percentage of their pre-tax commission and referral fee income to contribute to the program, according to the memo.
For the purpose of illustrating how the program works, Ankerbrandt described a hypothetical agent who earned $100,000 in pre-tax commission income. Instead of receiving that $100,000, the agent received $90,000 with $10,000 going to the equity program. At the end of the year, Compass then adds a 10 percent match, earning the agent an equity award of $11,000.
Then, in the first quarter of 2021, Compass’ finance team will divide that $11,000 by $154.27 — the price per share paid by investors during Compass’ Series G funding round — to determine the number of restricted stock units. In this hypothetical, the agent would receive 71 units.
The agent would then have to meet certain vesting conditions – which the source said is either a liquidity event or when the restricted stock unit is granted in 2021 – to receive the shares of common stock. Compass is still a private company at this time, so the most recent available value for those shares is the $154.27 figure disclosed.
Previously, the company’s agent equity program had agents invest a percentage of their commission income in stock options, with Compass adding a “bonus” of $0.30 for every dollar invested. Agents would then get stock option grants based on the current valuation of the preferred stock price, which, when the program opened for 2019, was $118.57. Agents would have had to pay a strike price per common share.
While the new program eliminated the strike price agents would have to pay, it also lowered the company match from 30 percent to 10 percent.
Compass first launched an agent equity program because it’s something that Compass agents asked for, a spokesperson for the company told Inman.
“The reason it’s continually updated is because it’s so popular,” the spokesperson said. “Compass as a whole is just really focused on agent happiness and the happiness of new Compass agents or the ones that have been with us for a long time.”
EXp Realty, another brokerage that offers agents opportunities to gain equity, has no vesting period. Agents receive stock award bonuses when hitting certain transactions and recruiting thresholds.
Update: Updated to include more information about the previous year iteration of Compass’ agent equity program.