The end-of-the-year salary and review process is the perfect time to revisit your firms' human capital strategy and make sure you have programs that develop and retain your talent. Based upon my experience managing my own teams, as a consultant and with the research we conduct on personnel, I offer the following tips for maximizing the process.
1. Make sure you benchmark your compensation structure. The talent that is in highest demand will command the most competitive cash compensation. In addition, each firm needs to decide what level and skill set is needed to support the firm's goals, and then set its cash compensation to be able to compete in those areas. Currently, the fastest growth in cash compensation is among technical specialists because they bring specific skills and expertise, create leverage for the adviser team and help firms to deliver on their value proposition efficiently and effectively.
2. Ensure that your firm's total cash compensation (salary plus incentives) is competitive. This requires looking at how salary and incentives are balanced with each other, how cash compensation is balanced with other plan components, and the market demand for the positions in your firm. The data from our 2011 IN/Moss Adams Adviser Compensation and Staffing Study indicate that a combination of salary plus incentives is the rule rather than the exception. The majority of employees — both professional and nonprofessional — receive a combination of salary and incentive compensation, and the ratio of fixed compensation to variable compensation has remained stable for the past four years, for all types of employees. Combining fixed and variable compensation rounds out a firm's compensation package, and by tying variable compensation to specific objectives and outcomes, this model can motivate employees to improve behaviors and practices that drive success.
3. Ensure that all employees have job descriptions, as well as goals and objectives. From the employee point of view, job descriptions help them understand their role and responsibilities, and what each job requires in terms of experience and skill base. Goals, on the other hand, tell employees what is expected above and beyond their basic job tasks; goals link to targeted objectives of those tasks and how their performance contributes to the performance of the firm overall. When goals and objectives are absent, it can be a challenge to encourage and motivate employees to attain the right results. Firmwide goals and objectives are just as important as individual goals, for two reasons. The first is that they provide context and help employees understand how their job tasks contribute to what the firm is looking to achieve. For example, how many new clients is the firm targeting? What level of profitability? What kind of experience does the firm hope to deliver, and what does that look like from the client's point of view?
4. Tie incentive compensation to measurable outcomes so they are easy to track, and they motivate. One of the main reasons firms use incentive compensation is to increase staff motivation and to increase behaviors and attitudes that correlate with the firm's success. Yet advisory firms have a mixed record in tying incentive compensation to tangible objectives: Only 50% of firms tie incentive compensation to individual goals, and only 57% tie incentive compensation to firmwide goals, according to our research. This underperformance cannot be explained entirely by firms' not having goals: 20% of those not tying compensation to individual goals actually do have documented goals for employees. However, no part of the employees' compensation is contingent upon meeting those goals. Objectives are a key part of the compensation mix, especially for incentive pay, and they need to be documented as well as used to drive performance.
5. Solicit input from employees during the year, not just at review time. Two-way open communication is essential to an effective working relationship. According to our study, most reviews are annual (66%), with only a small percent being semiannual (19%) or quarterly (10%). Remember, reviews do not necessarily have to be tied to an annual compensation review. Instead, giving employees timely feedback on a regular basis can be an opportunity to encourage staff development and continuous improvement year-round. Ask employees to assess their performance, and focus on accomplishments and areas for improvement. Equally important are asking for input on areas for development and talking about career goals, specifically the path for them in your firm. Review the plan with employees on a monthly or quarterly basis. This will help to correct any issues that come up and ensure that your employees stay engaged.
Kelli Cruz is the director of research and consulting for IN Adviser Solutions. Visit INadvisersolutions.com for more information on the 2011 InvestmentNews/Moss Adams Adviser Compensation and Staffing Study.