Your Advisory Firm Employee Makes a Costly Mistake. What to Do?

An interesting question came up recently on Securities America’s internal advisor discussion board:

I would be interested in hearing what policies or procedures other advisors use when an employee makes a mistake that costs the advisor money. I am specifically speaking about a situation when the employee did not follow documented procedures. Do you give the employee a certain amount of leeway, after which the cost of the mistake comes out of their paycheck? Or do you treat this as a cost of doing business and not charge the employee anything? I am looking for ideas as I’d like to address this situation in my employee handbook.

Before we look at best practices for handling employee mistakes, let’s get one idea out of the way. As justified as it might seem to dock an employee’s pay to recoup the money lost due to the mistake and as a preventative/warning measure to underscore the seriousness of the offense, this is not a viable option. First, it’s fraught with legal risks. Second, it’s the equivalent to swatting your dog on the nose with a newspaper for having an accident. You get the behavior you want out of fear—which in humans isn’t motivating and could actually backfire on you the next time the employee feels your behavior justifies taking a few office supplies or worse.

Rather than focusing on who pays for the mistake, advisors should focus on the possible causes of the mistake and then identify the best way to prevent it from happening again. Most job mistakes are caused by faulty processes, not people. Ask yourself if the mistake resulted from:

1. Lack of training: Have you set the employee up for success by providing timely and thorough training in tasks? Does the employee (or the whole staff) need a refresher training?
    
2. Lack of documented procedures: Has the procedure been handed down from employee to employee verbally or has it been written down? When was it last updated?
    
3. Lack of focus: Are the factors in the employee’s work environment or personal life that may be distracting?
    
4. Lack of clear expectations: Were your instructions specific enough for the employee to deliver what you had in mind? Did you set up the employee to succeed – or fail?
    
5. Lack of ability: Is the employee capable of doing the task assigned?
    
6. Lack of motivation to do the job right: Does the employee want to perform this task and do it well?

If you’re thinking you can’t control the last two possibilities on that list, you’re wrong. I’ve had a few conversations with advisors about the importance of “knowing your players.”

I don’t know which basketball coach to whom I should attribute this story, but it goes like this. A coach approaches his star player after a horrible game and an overall recent decline in that player’s performance. The coach yells, “I can’t decide what’s wrong with you. Is it ignorance or apathy?”