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October 31, 2018 at 05:58 PM
One realization I’ve had while working with advisory owners on employee- compensation plans is that many employees have misconceptions about how and why their compensation is determined.
Yet when employees have a better understanding of compensation, they are empowered to play a larger role in increasing it, and in the success of the firm.
It’s true that annual wage increases are intended — at least in part — to offset the annual increase in the cost of living (expected to be about 2.8% in 2018). But in most firms, annual raises are based on another factor.
Most employees believe that this factor is their job performance. But unless your compensation is specifically tied to performance (e.g. bringing in new business, etc.), this is a misconception.
In most advisory firms, job performance is what enables you to keep your job, and it might account for 5% or less of your raises. The other 95% or so of raises are based on the annual growth of the firm (revenues) and sharing the success of the firm with employees.
This insight is important because it refocuses an employee’s attention away from himself or herself and all the bad behavior that such inward-focusing can lead to (competing with other employees, drawing unneeded attention to oneself, undermining perceived rivals, etc.)
At the same time, this understanding tends to encourage team work, the sharing of ideas and information, supporting others and having both a focus for your efforts and your decision-making on what is best for your firm, and its clients.
A focus on what’s best for the business often changes what employees do when they get to the office in the morning. They think about what actions will be good for the business — the clients, your coworkers, the boss — rather than what’s good for them.
