General manager or management company?

Afternoon, folks. I am a committee member in a large HOA in Western Washington - we have about 3200 units. Our general manager resigned recently, and we are currently trying to decide whether to go with a new individual general manager or a management company.

I'd appreciate your insights into this in the case of large, predominantly single-family home HOAs such as ours. Can the theoretical benefits of a management company ever justify the substantial additional costs in the case of a community that already has significant economies of scale? We have already been told that we may not be eligible to join management company insurance programs due to the deteriorated state of our infrastructure, which annuls one important potential source of financial savings.

Thanks so much for your insights.

The GM would be an employee. We currently have a staff of - I think - around 35.

Adrienne

A HOA that size of yours should always be handled by a onsite General Manager. There are some management companies that have that arrangement with their larger HOA's.

Yes, Richard, we would always have an onsite manager. The question is whether we should just hire our own, or have a management company provide a manager and other necessary employees. Our current employees would be absorbed by the management company initially.

I have my opinions about the pros and cons of an individual general manager versus a management company, but I'd like to hear people's thoughts here without mine coloring them!

We have about 15 staffers and only the PM, her asst. and our security staff are employed by the MC. We pay the MC a lot to manage all of our affairs. So it, for instance, does the background checks, drug tests, etc., for security staff. The MC offers a few workshops a year to security They give writing and other tests for our GM & mgr. asst. Our GM with others of the MC has monthly meeting in the MC HQ for updates on state legislation & best mgmt. practices.

One benefit is the support staff at HQ: ITT folks, an accounting staff, HR, etc. The MC's CEO attends our board meetings abut 3x year and also our annual meeting.

I don't know, Adrienne, if your Board will want to pay enough to get this kind of service given your infrastructure woes.

It should be added that if you change MC, you lost everyone.

In our case, all of the staff would move to the management company.

If we then fired the management company, we would lose all our staff. Also, their IT systems, although some companies apparently would allow us to lease their systems afterwards.

I want to develop a list of pros and cons here, and you are helping me with that so please keep going, thank you. And please also let me know if you have strong feelings either way - thanks!

Among the urban high rise HOAs around us, only a couple have, say, asst. mgrs. as direct employees. They, as in our CC&Rs aren't permitted to hire a PM as their direct employee.

I've heard that one benefit of a onsite GM (PM) as a direct employee is loyalty. And no possibility that the MC can pull a good one and place them elsewhere. We've had our MC exactly 10 years now and are on our 4th PM. The first was no good; the 2nd was very good but wanted to go to a huge new account of our MC's in another part go the state after 3+ years with us. The 3rd after 3+ years became enmeshed in favoritism and bad decisions and resined (I think she would have been fired.) Our 4th, here 1-1/2 years is excellent and has just recently come up with outstanding ways to save us $$, while improving services. We'll vote on that in a few days.

Adrienne, I should have added that the rest of the staffers here work for vendors, e.g., a custodial firm; an engineering firm a landscape firm.

I agree

If you have a micro-manager, they will continue to micro manage regardless of how the structure of work is laid out.

Adrienne,

If your neighborhood is functioning well (we ALL have the stereotypical HOA board grousing/micromanaging), then seek a GM and don't disrupt your HOA operations. Remember, it's all about the dues payers' convenience and, if things are working, keep it running as-is.

An management company will not easily replace the institutional knowledge that will be lost by those 35 employees. Find an excellent GM.

Folks, thanks so much for all your feedback so far!

I have developed a table of the pros and cons of a management company. Couldn't attach it in its attractive Word format, so have pasted it in here instead. Please let me know if you have any additional thoughts or pros/cons I should include. Thank you!

Management company

PROS

DEFINITE

* Coverage for staff absences.
(resignations, leave)

* Knowledge/system support for staff.
Experienced principals and other staff ready to support our staff (incl. manager) with advice and feedback. Better ability to compare with how other HOAs are run/resourced.
(N.B. This is not an extra layer of management, it’s an extra layer of support.)

* Better software.
(Depends on company)

LIKELY

* Medium/long-run savings from pooling resources
Shared staff (e.g. accounting, human resources). Software licensing and support, where applicable.
Insurance doesn’t seem to be a likely source of cost savings given state of our infrastructure.

* Extended customer service hours
Weekend and evening phone availability for members.

POSSIBLE

* Better career prospects for staff could help to attract candidates and reduce turnover.
Possible opportunities for simultaneous work in other HOAs (resource-sharing). Better training.

* Easier to let staff go when unhappy with performance.
Should also be able to do this under GM model, but likely to be easier (process and psychological aspects) with management company.

UNLIKELY

* Responsibility for all human resource management (incl. recruitment) could reduce workload on volunteer board. But GM is also responsible for this under individual model. Board should not actually be involved (other than GM recruitment).
“If you have a micro-manager, they will continue to micro manage regardless of how the structure of work is laid out.”

Cons

DEFINITE

* High cost.
Overwhelming issue. Management fee likely far higher than savings from pooling (see likely pros below).
Can we afford it?

* Early contract termination issues
Several months notice (or fee?)

* Losing software after termination or paying (high?) licensing fees

* Non-compete clause.
Could not rehire staff after contract termination (depends on company)

POSSIBLE

* Better career prospects for staff could increase turnover.
Company can remove even well performing staff at any point, including General Manager.

* Harder to let staff go if company is unresponsive.
Manager behind management company shield.
Staff behind GM shield.

UNLIKELY

* Fee structure (% of staffing costs) may reduce incentives for savings on staffing.
But client satisfaction is likely to be a more important motivation. (Compare to real estate buyer’s agent: will still generally try to negotiate down price where possible, even if that reduces commission.)

Kelly, very nice points, thank you.

Richard, if success or failure lies in our hands, then can the substantial additional cost of a management company ever be justified?