Why Now's the Time to Start Making Comp Plans

For instance, I’ve found that combining a salary and an individual performance-based bonus can actually reduce performance behavior like bringing in new clients and/assets.

This is because, for many people, the safety net of a fixed salary creates a level of comfort that can reduce the effort needed to increase the desired performance.

What’s more, salary/individual performance comp can cause confusion for an employee about priorities. It’s generally better to keep these two plans separate and give yourself the option of adding a bonus if and when you feel its warranted.

Usually, you can tell if your comp/incentive plan is working if the numbers you want are going up — AUM, profits, revenues, clients, etc. However, be careful about AUM; that is, factor out any large market swings that can make performance look better or worse.

Simplicity Works Best 

It takes time to gather information and process it. Making comp decisions too quickly can create a lot of problems — both short and long term

How do you know if you have comp problems? The tip-off is that you find yourself doing more micro-managing, as well as dealing with an increasing number of complaints and/or discussions about compensation. And, of course, there’s the failure to hit goals.

The best comp plans are really simple, get reviewed every year and are adjusted when the firm’s goals change. But to make your comp plans simpler, you have to do some work.

By starting in the summer, you have more time to make much better decisions about next year’s comp plan. This effort should make October budgeting a lot easier, too, and it can eliminate that year-end rush that leads to poor decision-making about a critical component of both your firm’s growth and its success.