In the early days of the independent advisory industry, virtually all advisors had been brokers or insurance agents in their previous careers.
In their prior lives, which largely entailed sales, most advisors received professional sales training. A major part of that training this rule: “Never talk about price, until you’ve fully explained what the prospect will get for the money.”
For younger advisors without sales training, I should mention that the reasoning behind this rule was simple; a prospect cannot determine if a price is fair without knowing what he or she is paying for. By not describing your products or services first, you run the risk that a prospect will form an impression based solely on price, which you’ll have a difficult time changing.
This old sales wisdom crossed my mind the other day, while I thinking about how owner advisors should talk to employees about new compensation structures. In my experience, most firm owners are inclined to talk about a new comp structure and get input before they decide on what possible revisions will look like.
This practice is a mistake. Like the salesmen of old, firm owners who talk to employees about compensation before they’ve actually created a new compensation structure are asking for trouble — often big trouble.
Here are some of the major reasons why:
1. The comp structure could change from what you were initially considering before you introduce it, which is usually a good thing.
But not always. Bad things can happen when some, most or all employees like the comp plan better before your brilliant changes.
The problem is that you effectively have given them a negotiating position against what you’ve decided to do. You must have thought the old plan was pretty good or you wouldn’t have told them about it.
Any good sales person will tell you, it’s a lot easier to sell something you firmly believe in than to persuasively explain why you’ve changed your mind.
2. By speaking about your new comp plan prematurely, you are setting your employees up for disappointment.
For instance, suppose that after talking about your plan with your accountant and/or business advisor, you realize that you can’t afford to raise compensation levels as high as you’d hoped to. No need to spell out the problem here.
3. Perhaps most important, when talking about a new comp plan too soon, owners often don’t know just how the other benefits they offer are going to work out.
Will there be better health and retirement benefits, a more flexible work schedule, the ability to work from home, company cell phones, computers, upgraded training, a new partnership track, and so on?
By talking about the monetary part of compensation but excluding the benefits side, you make the mistake that amateur salespeople make (as I described earlier).
What’s worse than talking about a topic before you have all the info? Failing to follow through on some benefits you’ve discussed earlier. Talk about eroding trust.
Though there’s nothing wrong with getting input before changing your comp plan, you should not commit to anything or even give indications which way you’re leaning on various elements of the comp plan until you are ready to unveil the new plan in its entirety.
Of course, the “new” plan isn’t etched in stone. Once you have completed a plan that you like, it’s critical to get input from your employees. We traditionally do this through a survey.
Also, be sure to listen. If someone comes up with a good point or a better solution, make the associated change(s). This will enhance your reputation as a wise and benevolent leader of your organization.