Center of attention Featured

8:00pm EDT July 26, 2009

Jeffrey I. Friedman has his hands full trying to manage about 13,000 apartment homes in 52 communities across nine states. But as chairman, president and CEO of Associated Estates Realty Corp., he doesn’t worry nearly as much about the properties as he does about his people.

“The things that we believe are important at Associated Estates really revolve around what we call an employee-centered culture,” Friedman says. “In many of our publications, you’ll see us talk about people, processes and portfolio — the three P’s of our business — and we intentionally lead with the people side of it.”

Leading with the people part of the business is crucial at Associated Estates (AEC). With an estimated two people living in every apartment, the apartment property management company has nearly 26,000 residents and turns over about half of those each year. That means 13,000 new people move in every year, but employees actually see about four times that many people. With so many prospective residents coming in, it’s crucial that Friedman has the best people at every property to provide top-notch service in order to win their business. Beyond that, employees have to work just as hard to please current residents.

“We have to educate our folks in the field to understand what it is to deliver this high level of customer service to keep our existing residents happy as well as sales techniques to capture sales prospects as best we can,” he says.

And those educational efforts are only going to pay off if the employees stick around long enough to use them. One of the benefits AEC has seen to an employee-centered culture is a low voluntary turnover rate. The company averages about 27 percent voluntary turnover, which is about 6 percent less than the industry average.

“Employee retention is very important … because the time and the cost involved with educating someone, understanding the way we do business, take a lot,” Friedman says. “It’s a tremendous investment both on the part of the employee in terms of their time and commitment as well as on behalf of the company.”

Here’s how Friedman built an employee-centered culture that has taken AEC to $135 million in revenue and continues to drive growth.

Hire the best

A few years ago, Friedman and one of his managers were interviewing a prospective employee who would work under that manager. During the interview, Friedman was very honest with the candidate.

“I want you to want his job,” he told the candidate while pointing at the manager.

The candidate’s eyes lit up at the excitement and possibility of starting at the bottom and taking his boss’s job, and that excited Friedman. But later, after the interview, that manager pulled Friedman aside.

“I wish you’d stop telling these people to want my job,” he said to Friedman.

That concerned him because it showed Friedman that the manager wasn’t looking to hire people better than him or who had the potential to be better than him, and that’s what you need when you’re creating a strong organization.

“Good managers really want people who can do their job because the more people that we have who are that capable, the better the overall company is,” he says.

In order to get those people who have the ability to advance in your organization, it’s crucial for both parties to be honest in the hiring process.

“At the executive level, it starts out with a tremendous amount of honesty on both parts, because if the strategy that I lay out is simply to capture the interest of the prospect, then just like a customer may feel let down or disappointed if we don’t deliver on the high level of service we provide, that employee or that officer is going to be disappointed if we didn’t deliver in terms of the strategic direction, so the honesty starts on our part,” Friedman says.

Be sure to share your company’s goals and vision and strategic direction so that the candidate gets a good idea of what he or she is potentially entering in to. But you also have to make sure that you honestly get the candidate’s goals and vision, too.

“If they really want to be the CEO and their job as a VP is simply to take my job, that wouldn’t necessarily be bad — but if I don’t understand their career objectives, in that sense, if there’s somebody else who may be in line for that position, and I know that, and I’m able to say, ‘Well, look, if that’s your objective, you should probably look at another company because there are two or three people that would have that opportunity before you,” Friedman says.

You also have to get your employees’ goals so that you can best meet them, as well.

“If they don’t tell us what their objectives are, it’s more difficult for us to provide that path in which they’ll constantly feel motivated and excited and happy to come to work every day to help contribute to our success,” he says.

Establishing two-way honesty in the hiring process is also critical, because it sets the expectation for how they should communicate once new employees start with the company.

“Have that understanding upfront so when it’s at a high enough level, where you’ve had that discussion, then the proof is in the pudding,” he says. “If the strategy I laid out and the growth and the plans and the way we operate and the culture I laid out is the way it is, that person knows pretty quickly, ‘Hmm, that person was honest with me in the process.’”

And once you have someone you want to bring into your organization, be willing to put out the money. Years ago, Friedman says AEC tried to pay as little as it could get away with, but over the years, the company shifted to paying more so it could attract the best. AEC is now committed to paying around the 75th percentile of the pay grade for any given job responsibility.

“When you do that, if that person isn’t well-suited for the position, we’re able to, from a pay perspective, easily replace them, … ” Friedman says. “We want to pay fairly, we want to pay at the high end of the range, we want to get performance, and if that person isn’t able to perform at the level we expect, we want to be able to quickly replace them and be realistic about how much it’s going to cost to replace them.”

Create training programs

One of the key drivers to AEC’s success has been the creation and development of its AEC Academy for Career Development. The academy is a tool that Friedman uses to continuously train and educate his employees.

“Our AEC Academy is made up of experienced instructors who go out into the field in each of our markets and teach these skills and teach these tricks of the trade to employees,” Friedman says.

The first step in creating a successful training program is to have the right people overseeing it. All of the instructors in the AEC Academy have several years — sometimes 15 or 20 — of experience in the industry and have worked their way up the ranks in their given specialty area, such as accounting, property management, leasing consultant or maintenance. Program leaders need to have the experience of doing everything themselves in their given expertise area, and they also need to have a solid knowledge about other facets of your business so that employees will respect them and what they say.

“It really gains a tremendous amount of respect when the people in the career development academy are able to walk into a property and they can do any job on that property,” Friedman says. “The best leasing consultant and the best manager may not be able to necessarily change a washer on a sink faucet, but they certainly know how much it should cost to make that repair and how much time it should take.

“When you have that respect from the people you’re trying to educate, that goes a long way in terms of building a rapport and respect.”

Your program leaders also need to be the people who most buy in to your company and its mission, and they need to be passionate and energetic about the business.

“You can’t imagine the energy of the leaders of the AEC Academy,” Friedman says. “They love what they do, they’re fun to be around, they’ll dress up in costume, and they’ll have spirit contests.”

Once you have these kinds of people, then you have to figure out what they’re going to train the rest of your employees on. AEC’s training program is made up of two different types of courses — set training and electives. Set training consists of the core elements of the business, and these courses are critical for new employees. Then there are elective courses that change depending on what’s happening in a specific market.

“I believe it was Warren Buffett who said that when the tide’s in, you can’t tell who’s swimming without a bathing suit, but when the tide goes out, you can see who’s swimming without a bathing suit,” Friedman says. “So in our business, when the market is very strong, it’s harder to tell what property and maybe who at the property isn’t performing like they should be because the market is strong … but the instructors who go out to the property, by interacting with people, may be able to tell if there’s special needs, so those are the electives.”

In order to determine the elective training courses, academy leaders have to know what’s going on in the market and at the competition. Before visiting a property, they will “shop” the competition to see what features they offer, what their service is like and check out the curb appeal. By shopping the top two or three competitors in that given market, it gives the instructors a solid basis to compare their own properties against. They can then go to their own properties and compare, say, their leasing consultant’s approach toward a prospective resident compared to the competition’s approach. When the instructor sees gaps between the property and the competition or the property and the market, then he or she creates a training program for the employees at that property.

“The instructors have to change that curriculum based on the markets and the demographics and what’s going on in each of them,” Friedman says.

When instructors travel, they typically will spend a couple of days in each market, and they spend nearly all of their time on the road. But as they travel and train, they also have to keep their customers in mind, so when you create your training program, be sure to conduct classes or workshops during times of the month or year that don’t interrupt your customers’ schedules. For example, in the apartment business, most customers move in or move out at the beginning and the end of the month, so instructors try not to schedule major training sessions during this time so employees can fully devote their time to the customers.

Monitor performance

The average rent for an AEC property runs about $975 a month, so if someone signs a 12-month lease, that’s nearly a $12,000 sale that the AEC employee is trying to make or renew. With that kind of money on the line, the last thing Friedman wants is for an employee to pick up the phone when he or she is talking face to face to a prospective renter or a current tenant.

“You would expect that if you’re at a drug store and buying a magazine … you may be able to wait while someone answers a call when you’re checking out,” Friedman says. “But when you’re thinking about spending (about) $10,000 a year, it really does make a difference in how you’re treated.”

To ensure that employees are doing the best they can to convert those searchers into tenants, he has to motivate them to do well and then monitor their performance.

“Combine the regular contact with the career development with the pay, and then you have to keep a close handle on how they’re performing,” Friedman says.

To start, AEC ties performance to salary. Every employee is eligible to receive a bonus, and more than 85 percent of AEC’s employees have some part of their compensation based on incentive. For people who may be lower in the organization and may rely more on a solid salary, they may only have 5 percent tied to incentive, but as you get higher in the organization, so does the amount tied to performance incentive. For Friedman, 80 percent of his total annual compensation is tied to his performance.

“It’s motivating, but it’s also important from a strategic perspective because that incentive compensation has to be tied to a very specific strategic plan and very specific ways to measure that performance,” he says. “We have to make sure the basis by which we’re incented drives those objectives from a corporate perspective.”

Friedman is careful to make sure that incentives reflect long-term goals versus short-term goals. For example, at the property level, a property manager may be incentivized based on how their property performed against their budget for the quarter because at that micro level, the quarterly numbers are critical; however, on a regional level, it may be how the region of properties performed against their budget for the whole year. Then at the corporate level, executives may be incentivized based on how they performed that year against the multiyear strategic plan.

Ultimately, it’s this combination of looking at specific location performances and then zooming out to see the big picture that will give you a true image of how your people are doing.

“If (a location is) performing well, it’s reasonable to assume that the people at the property are performing well, and it’s the responsibility of the manager to determine if we could be doing better but for lesser performance of someone,” Friedman says. “Conversely, if the property is not performing as expected, it’s practically always about people.”

To measure which properties are performing and which aren’t, the company puts out a list of its top 10 and bottom 10 properties each quarter. Before jumping to conclusions, though, it’s important to properly evaluate those bottom performers by looking at the market and region and seeing if they’re performing low relative to the whole company or if they’re performing low relative to their market or region.

For example, in Northern Atlanta, AEC has an excellent team, but it’s a very soft market, so while the Northern Atlanta properties may not be performing as high as other AEC properties, they’re doing excellent compared to that market.

“Where there is a disconnect between how we’re doing against the market is where managers have to manage poor individual performance because typically it relates to people,” Friedman says.

One way AEC does this is by using those “shops” that academy instructors do when they visit the properties. While they do this at the competition, they also do this for AEC employees as well to grade their job performance, and employees are aware that they may be shopped at any time during their employment.

Instructors use hidden cameras to record the language — both verbally and physically — to illustrate good and bad techniques. When someone doesn’t do well, then instructors and managers take a deeper look at the situation so they can educate the employee and help him or her become better.

“It’s not just important in regard to a video shop, but it’s important with any type of mentoring and part of a career development pattern,” Friedman says.

If someone has a bad performance, one of the first things the instructor or manager looks at is the person’s personal circumstances.

“It may have something to do with the personal life of the employee or issues that may have been going on in their life that day,” he says. “That happens in all of our lives. The role of the manager is to determine if that was a one-off situation or it may be something deeper and of greater concern.”

If the manager or instructor determines it wasn’t a one-off situation, then he or she will personally work with the employee to show both what the employee did and also examples of how it can be done better. For example, instead of just showing the employee everything he or she did wrong, the employee is also shown examples of excellent video shops so he or she can actually see how to do things better instead of just being told.

On the other end, when someone gets a perfect shop, the entire company is notified so that that person is recognized for an outstanding performance.

“Employee recognition is really important,” he says. “Pay practices are important, and most business leaders recognize that there is definitely a relationship between pay and performance, but also, I think we all recognize how important recognition is.”

How to reach: Associated Estates Realty Corp., (800) 440-2372 or www.aecrealty.com