The financial advisory industry continues to grow and mature in management practices, but some firms are accelerating faster than others. These firms have advanced beyond leveraging staff to service clients and are tackling succession planning and business development. Questions they are dealing with apply to all firms: “Who will grow and manage the business in the future?” “How do we develop individuals to be leaders in the firm?”
Cultivating individual performance means creating an environment that engages staff to develop into managers, business developers and leaders that the firm needs to succeed over time. This year, the 2015 InvestmentNews Compensation and Staffing Study will focus more on compensation practices, paying particular attention to how your firm can better develop future leaders and create an increasingly sustainable business.
Although compensation is only one aspect that drives individual performance, it is often a predominant headline of a benchmarking study. Yet there are things a compensation number alone doesn't tell us. While the firm draws value from its investment in an individual, the benefits of managing staff performance and compensation are quantifiable. According to the 2014 InvestmentNews Study of Advisory Firms, businesses that outlined clear objectives with measurable gains regarding staff performance and productivity grew faster than other firms.
Before we look at the application of compensation in your firm, consider the way we perceive price for service (compensation) outside of the advice industry. We rely on people in all parts of our life and depend on their best efforts to help us, and we don't always have to pay them. Getting a package to a client by 10:30 a.m., filing your taxes by April 15, picking up your child from school or meeting for a dinner party are all made possible with a counterpart. We have delivery services, accountants, family and friends positioned to help us meet our objectives and keep us from dining alone. It's clear, however, that all relationships are not the same. You must pay for a delivery service or an accountant, but not for the help of family and friends. Our close relationship to members of our family, friend group and team creates a social currency that we use instead of payment.
How is this different for a company versus an individual? A company has close relationships to its staff, yet pays them wages. Does this mean staff is more like a delivery service than a friend? If this were the case, simply paying staff more should result in greater performance. However, we know compensation alone does not work without education, training, management and the desire of the employee to perform. People are not coin-operated to do good work, but compensation is also not without effect.
As business owners, our concern is the development and motivation of our staff's talent. Directing individual performance to meet the needs of the company requires managing the work environment and rewards for your people. Compensation works in conjunction with management and culture to guide individual development and performance. In the 2015 InvestmentNews Compensation and Staffing Study you have the opportunity to participate in an assessment of your firm's ability to drive individual performance through:
• Management — Without direction, employees will struggle to perform. A skilled driver is no better as a chauffeur than a poor driver at getting you to your destination if you don't tell them where it is. What is your firm doing to direct performance? How are we assigning responsibilities and expectations to improve skill?
• Culture — When no one is managing a situation, how will the staff perform? There is social pressure in your firm to act in a certain way. The office might be professional or casual, competitive or collegial, rigid or loose. Culture can also include peer-to-peer expectations for client service, growth, educational advancement or other firm values. How is your firm culture supporting staff performance?
• Compensation — Money is an important part of the equation for individual performance. The wage for a level and quality of service must be competitive and mutually beneficial to the individual and the firm. Compensation also has a purpose to drive performance, but it does not work alone. At some point, earning another dollar fails to carry the same incentive unless the individual has other intrinsic motivators. In the words of Arnold Schwarzenegger, “Money doesn't make you happy. I now have $50 million but I was just as happy when I had $48 million.”
• Benchmarking — The best gauge of firm success is how your firm has improved. Benchmarking is important because it goes beyond a single data point and provides comparison information that otherwise could not be used to reference the direction of the firm. How is compensation shaping individual performance and firm success? By participating in the 2015 InvestmentNews Study, you will evaluate your management practices against the type of firm you strive to become.
Regardless of firm size, the most important factor to your firm's future is your people. Staff constitutes around 75% of your total firm expenses. By developing your people, you engage your largest resource to grow, manage, lead and transform your firm into a successful and sustainable business.
On behalf of Investment News and The Ensemble Practice, we invite you to visit InvestmentNews.com/2015compstudy and participate in the 2015 InvestmentNews Compensation and Staffing Study.
Brandon Odell is director of business consulting with The Ensemble Practice, a business management consulting firm. The Ensemble Practice is a strategic partner to InvestmentNews Research and the 2015 Compensation and Staffing Study.