Employee compensation isn’t a topic many independent advisory firm owners want to deal with until year end, but let’s tackle it anyway.
Typically, owners put off thinking and talking about compensation because it makes them uncomfortable — which is not unlike their clients’ feelings about financial planning.
As with financial plans, compensation plans usually turn better if the right amount of time and thinking go into them. This is why now — yes, in summer — is the best time for owners to start thinking about next year’s compensation plans.
Show Me the Fairness
Poorly designed comp plans are at the top of the list of employee problems, but it’s not because of money. Well, usually not. Employee unhappiness (and the resulting poor job performance) is rarely about money — even when employees think it is.
For most employees, the comp issue boils down to one issue: Is their compensation “fair”?
That typically boils down to: Is my pay at the same level as others in the firm doing similar jobs with similar success? And is it comparable to what people in other advisory firms get paid for the same job?
That said, poorly conceived comp plans can cause other employee problems. I usually ask firm owners if their current compensation structures are working.
This means, do the plans create incentives for the employee performance and behavior they are looking for? For example, do they contribution to the addition of new clients, client retention, greater efficiently, etc.?
If not, it’s time take a hard look at the current comp plan. What is your pay philosophy: salary, salary plus bonus, salary plus performance incentives? Are these pay plans producing the behavior/performance you want? And, how do you tell if they’re working?