Over the years, I’ve come to realize that, as with many other elements that are key to building a successful independent advisory business, the success or failure of a compensation plan largely depends on other factors in a business. More often than not, these building blocks need to be addressed first.
The big mistake employers, job candidates, and even existing employees make is thinking that compensation is all about the money. It isn’t. I’d even go so far to as say that employees who can’t be convinced of that may not be good employees.
Don’t get me wrong. What we’re paid is important, but more often, other aspects of a job determine people’s happiness, satisfaction, motivation and performance at work. By focusing first on creating those key job elements, both your initial and future discussions with employees about their compensation will go more smoothly.
Here are the essential elements for laying a good foundation for employee relationships and putting compensation into a broader context:
Core values. You’ve undoubtedly heard about determining and articulating your firm’s “core values,” but my experience is that most firm owners don’t take this seriously enough.
Largely, this is due to advisory firm owners already knowing what their core values are — and living them every day. They see that helping people align their finances to live happier, more fulfilling lives enables them to lead happier lives as well. And that working together as a team, and treating each other with respect and kindness while doing it, makes it even better.
But owners often don’t realize people without their training, background and experiences may not understand this reality. Therefore, it’s important to communicate these values and standards to all employees; if for no other reason so they’ll know that even though we’re all in the financial services business, our purpose is broader and more important.
Organizational structure. Again, when you’re at the top, this might not feel important to you. That’s because you know exactly where you fit into your business. But when you’re an employee, things may not be so clear.
I’ve found that people tend to be happier — and perform better — when they know where they fit in and the role they play. It’s important to know whom you report to and who reports to you, as well as to understand how your job fits into the overall mission of the firm and to grasp the quality of care that clients receive.
Every job may not be equally important, but all jobs are important. This lesson is learned by anyone who has ever lost a client because his or her assistant failed to pass on a message to call the client back.
Career track. Just as it’s important to know where their job fits in, most folks also are motivated by advancement. They need to feel that they are learning, growing, and becoming more valuable to others, and to themselves.
Most of us are motivated by knowing that doing our current job well can lead us to a position we might like even better. Be sure to communicate not only where an employee can go, but also what it will take to get there.
Training programs. This element frequently is overlooked, and yet, from the perspective of an employee or potential employee, it’s one of the most important. It’s good to talk about a possible career track, but your training programs tell employees that you’re serious about helping them to advance.
The more specifics you can provide, the better; therefore it is an advantage to have training programs in place. These programs can and should include everything from teaching new employees about the firm and how it works (processes and procedures) to how your tech systems operate and what it takes to become a supervisor, manager, advisor and even an owner.
Performance tools. In addition to training, employees also need the right tools to succeed at their jobs. Today, that means having — at least close to — leading-edge technology, both hardware and software. These days, client communications, portfolio management, outputting quarterly reports and working with custodians and BDs are made easier and more efficient by up-to-date technology.
Successful owners realize that the leverage gained with technology usually more than pays for itself in increased efficiency, which translates into greater productivity with fewer employees.
It’s also important to provide employees with the tools that they need to both succeed and excel. This sends the message that what they do matters and that their job is important to the firm and to its success. A failure to support their success sends the opposite message.
Basic benefits. To attract good employees and keep them, you don’t have to provide a great benefit package, but you do have to provide a good one. That means offering health insurance, life insurance and a retirement plan. Your benefits may not be the top factor in helping you attract candidates or keep employees, but weak benefits certainly hurt your ability to do both.
Lifestyle benefits. These days, flexibility in working parameters is important to most employees. Being able to work at home when appropriate, setting starting and ending work times, and choosing when to take lunch and go to out-of-office appointments all empower employees to create jobs that fit their lifestyles.
To most employers this may sound like chaos. But in many of my client firms, we’ve found that giving employees the responsibility to set their own schedules increases performance.
I suspect that’s partly because they want to continue to receive this high degree of freedom. But also, a high level of trust and responsibility motivates employees. What’s more, I’ve found that the need to coordinate schedules with other employees creates stronger working relationships.
Compensation structure. Finally, there’s the compensation structure itself. In today’s competitive market for professional talent (and to a lesser degree for support help), firm owners tend to try to compete on price — that is, to outbid other firms. This is a losing game for many reasons.
Consequently, offering competitive — but not excessive — compensation for all positions attracts the best long-term employees. Those who are too focused on the money often don’t make the best employees. It’s important to know what the “going rate” for each job is (factoring in levels of training and experience) in your area, and maybe pay just slightly more than that for each of your positions.
I also recommend that you pay performance bonuses — either annually or quarterly. I’m not a fan of profit-sharing plans, as in my experience, paying based on profits often creates more problems than incentives for two reasons.
First, in small businesses such as independent advisory firms, few if any employees have any real control or influence over the costs that ultimately determine profitability; the owner usually does. This means that every cost decision the owner makes directly affects the employees’ bonus.
Talk about setting yourself up for critical review! Do you want your employees questioning whether you really needed to go to that conference in Las Vegas, get a new company car or hire your daughter as an intern, because all those expenditures are coming out of their pockets, too?
On the other hand, revenue-based bonuses put everyone — owners and employees — on the same side of the table: wanting to increase the amount of money coming in the door. That is, getting more clients, getting larger clients, keeping your clients. It is the proverbial win/win.
Notice how creating a foundation of these eight building blocks changes the conversation with both prospective and existing employees. Their jobs are about more than just the money and include career, lifestyle and their importance to the firm. I’ve found that this shift in emphasis creates better employees — and much more successful businesses.