In my consulting practice, the most requested topic is related to compensation. Financial advisers are concerned about paying a competitive rate. They're not as worried about overpaying their key employees as they are about underpaying them.
There is no doubt that one of the keys to attracting and retaining employees is having a competitive compensation and benefits package.
But before benchmarking the positions in a firm with industry compensation data, take a step back and make sure there is a strategy for how to manage, develop and retain employees that ties to the overall business strategy.
At its heart, an advisory firm is a “people business,” in which the value delivered is driven almost entirely by its personnel. Therefore, just as advisers would look for the most appropriate assets to meet a client's investment objective, firm owners need to set a strategy to hire the most appropriate people for its clients.
MORE THAN A PAYCHECK
It is critical to understand that managing personnel is more than just compensation.
It is about how to staff the organization and why, and how to drive performance and motivate the team. For this reason, every firm needs to design a unique combination of rewards and incentives that works best for that firm.
The compensation plan should:
• Be aligned with the business strategy.
• Reward the key contributions to the firm.
• Be affordable over time.
• Most importantly, be in alignment with what the staff expects to get in exchange for working at the firm.
The plan should be built on a pay philosophy that aligns with the culture and strategic direction of the firm.
Several of my clients have created a compensation philosophy statement that describes their programs and establishes guiding principles for administering pay. The statement is used with existing employees and in recruiting talent to the organization.
For example, if the firm has a culture of being team-oriented, then a guiding compensation principle would be to reward team performance over individual performance.
If there is a client service culture, then the compensation plan would reward client service and retention. If the firm wants to attract and retain the highest caliber of talent, the compensation plan should be targeted to pay above the median and, in some cases, at the 75th percentile of pay.
Using benchmarking data is an effective way to determine if the firm is paying competitively and to establish a salary range and total cash compensation (salary plus incentives) for each position in the firm.
The compensation plan should contain the following six components; the mix or balance of these components will depend upon the business strategy:
• Base salary, which is the fair market compensation for the role.
• Short-term incentive, which pays out annually and is tied to the overall firm strategy and vision.
• Long-term incentive, which provides financial rewards based upon a firm's longer-term performance (typically three to five years).
• Benefits and perquisites, which include traditional benefits, such as health and dental insurance plans, and nontraditional health benefits such as golf club memberships.
• Retirement plans.
Simply finding the firm's place on a pay scale for salary and incen-tive doesn't provide a clear picture of the competitiveness of the firm's compensation strategy. Salary and incentives are just two elements in a reward system in which a number of variables are at play, including competition to hire and how the firm employs other levers such as benefits, time off and career path opportunities.
Kelli Cruz (kelli@cruzconsulting group.com ) is founder and managing director of the Cruz Consulting Group, a business management consulting firm.