If you’re at all familiar with the film Field of Dreams, you know that it takes more than simply plowing the cornfield and building a baseball diamond to achieve your dream. You also need to attract the right team of people—the Human Capital.
As a successful strategic business leader, you recognize that your human capital is your most important asset. And you continually invest in that team to drive growth, efficiency, and profitability.
The success and long-term sustainability of your business depends on your ability to attract and retain the best talent—placing the right people in the right positions at the right time! But a critical component to successfully achieving this goal is your ability to develop and communicate a compelling ‘compensation philosophy.’
Similar to your business’ mission statement and value proposition, your compensation philosophy defines the ‘why’ behind the rewards system you’ve put in place for your team. When well designed, documented, and communicated, your compensation philosophy can set you apart from the competition in the search for and retention of top talent. It helps to create alignment in team objectives, coordinates work towards shared enterprise goals, and rewards team members in a consistent and understandable way.
Simply put, you can’t have a truly successful compensation plan without a clear and compelling compensation philosophy. So, where do you begin? Start by thinking about how you would answer the following questions:
- How do we set people up for success? This involves more than just “if you achieve X then we’ll pay Y”; it’s about creating clear milestones and expectations, in addition to supporting your team with the education, training and skills development they’ll need to flourish.
- How do we motivate and reinforce team members? You’ll need to meet their desires both intrinsically (from a personal and professional satisfaction standpoint) and extrinsically (from a financial compensation perspective). Financially, you’ll want to think carefully about how much to incentivize individual and/or team accomplishments.
- What skills and qualities do we most value as a firm, and how will we reward those? You’ll need to lay out specific milestones (that most benefit the firm) which individual compensation increases and advancement will be tied to. These could include attainment of certain credentials like the CFP®, demonstration of leadership and/or mentoring skills, or basic measurable business development and growth goals.
- How do we want to set salary and performance incentives (below, at, or above industry standards)? This question really gets to the heart of what type of firm you ultimately want to create. If you genuinely want to be a growth-focused enterprise, then you’re going to need to match or exceed industry compensation averages for key positions. If, on the other hand, you’re happy with building a successful lifestyle practice where work/life balance is a higher priority than exponential growth (and there’s nothing wrong with this strategy) you’ll likely be able to compensate at or even below market rates.
- What exactly will you incentivize? What’s your desired outcome? This will likely vary depending on the size and structure of your firm. If you’re a smaller, growth-oriented business where everyone needs to be wearing a sales hat, then you can easily incentivize individual and team revenue and profitability goals. If you’re a larger firm with greater specialization of roles and functions, however, pertinent metrics for differing functions (e.g., client satisfaction scores for relationship managers and service advisors).
- What other benefits do we want to provide for employees? It’s important to keep in mind that younger generations tend to be less motivated solely by money. Maybe you want to establish some structured opportunities to work remotely and/or work flex hours. You might even consider incentivizing the firm’s level of annual community philanthropy as a ‘quasi-benefit’.
- How precisely do employees advance in their career path? Make sure you have clearly documented and communicated career paths—with expected competencies, abilities, designations, and years of experience required to advance up each rung. You’ll also need to formalize an achievable ‘pathway to partnership.’ This will allow the best and brightest to see a clear path and timetable to partnership/ownership in both your recruitment and retention efforts.
Elite advisory firms invest the time and energy to design/uncover the various elements and components of their compensation philosophy. After all, it’s the why behind the entire reward system you’ve put in place to incentivize your team.
At ClientWise, we believe strongly that a clear and concise compensation philosophy is a critical first step in building a strong, enduring, and motivating compensation and incentive plan. It can set you apart from the competition and serve as a critical business tool that makes a meaningful impact today, while ensuring the sustainability of the business for generations to come.
Coaching Questions from this article:
- Thinking about your firm’s current compensation philosophy, how might it be better aligned to your key business goals?
- Are there steps you can take to better formalize, document and communicate your compensation philosophy and plan so that everyone in the organization is pulling in the same direction?
- What steps can you take to make sure future leaders of the firm know what’s required of them to achieve partner/owner status and have a reasonable time expectation?
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