Not a month goes by that I don’t get a call or question about compensation for a staff position or junior advisor. The questions come from either an advisor looking to hire/retain a junior person, or occasionally from a staff member trying to make a case to their firm about how underpaid they are. The conversation is less about salaries (although it does come up) and more about incentive or variable compensation and bonus. Lately, my answers may surprise you… instead of giving a number or formula, I ask what would it take that person to leave your firm and why are you doing things?
Ask Yourself: What Behavior Do You Want?
Over the years, I have lived by a simple rule when it comes to compensation: Compensation, especially with variable comp, should be used to drive better behavior. More importantly, advisors shouldn’t have to stick with the same variable comp structure every year as priorities and goals may change. I ask the advisor to think about the goals of their firm, more importantly, the leading indicators of success and tie the metrics around those indicators.
As I said, the conversations are changing lately – they are becoming broader. Today, we start with a conversation about the work environment. We answer and discuss:
Is there a clear vision and purpose for the firm (do you know where you are headed)?
Does the employee have/want the opportunity to grow and is the path laid out for them?
Is there a sense that the employee is fulfilled?
Is the employee valued?
Is compensation really the issue you are trying to solve for?
In my mind, staff more often leaves a business for reasons other than compensation. The biggest reason is always around the vision of the firm and where they fit.
In our most recent paper, the Purposeful Advisory Firm, my co-author Raef Lee and I discussed the concept of value engineering for advisory firms. The idea was that an advisory firm has a few levers they can pull that can determine the firm’s direction. Moving a lever in the right direction can propel the firm toward a successful enterprise or to lifestyle firm. To me, the people (staff) lever is the most important.
How you use talent can be the key to your success so it is critically important to understand, communicate and plan for the direction of your firm before you discuss variable compensation with the staff. How can you decide on a number if you don’t know what you are paying for or the direction that the compensation will take your firm?
Lifestyle vs. Enterprise: Questions for You
Before you get into the dollars and cents of a compensation plan, I think it is important to ask questions that can help move that value lever:
Do you aspire to take your firm to the next level? (In addition, can you define what that next level looks like?)
Do you have the appetite for adding (and managing) more employees?
Do you have it in you to fire yourself as an advisor and hire yourself as CEO?
If you answer yes to all three of these questions, you are heading down that enterprise path. You will be busy with defining roles, job descriptions and creating a path for all your team members to grow within your firm. Yes means looking at a team approach to the client service model and possibly a COO hire. The enterprise variable compensation will look at the big picture of the firm and how you are building it for the future.
If you answer no, then the lifestyle approach may be calling you. And figuring out that variable compensation is going to be even more important. You should create a plan that reinforces longevity, continuity and service. The lifestyle firm cannot afford huge turnover forcing the advisor back in the day-to-day operations of the practice. Morale and culture are very important to retain existing clients and strengthen the brand of the no-doubt personality driven firm.
Not having a purposeful compensation plan in place leads to employee retention issues. A purposeful plan leads to maximizing the hire for the future direction of your firm. I am often accused of sounding like an attorney (or an economist). When someone asks me about compensation, instead of a direct answer, I now say, “It depends on you.” What kind of firm do you want to be?
This article originally appeared on SEI’s Practically Speaking Blog.