As a strategic business leader, you recognize that your team – your human capital – is your most important asset. You invest in them in a variety of ways and, in turn, they fuel the continued growth of your enterprise. That’s why one of the most important elements to the longevity and continued success of your business is your ability to attract and retain talent – getting the right people in the right seats at the right time, and not losing them to the competition.
Yet many firm principals tend to view their human capital solely in terms of being a cost (albeit a necessary one) of doing business. It’s a mindset that leads to reactionary rather than proactive behaviors. Instead of hiring to drive growth, these organizations usually hire in response to growth. They frequently push the limits of capacity – reluctant to bring on new team members until it’s deemed absolutely essential as indicated by a drop-off in service quality. And they reward exceptional performance haphazardly – driven more by the fear of losing a key player rather than an effort to cultivate loyalty and stronger bonds.
Recruiting and retaining top talent
One of the key elements of this challenge is the creation of clear and measurable growth and development plans that provide clarity around not only what is expected of each team member, but precisely what they need to achieve in order to take the next step in the firm. Research shows that individual team members who participate in written performance and professional development plans are more engaged in their work, more likely to learn new skills, meet goals more readily and are generally happier in their roles. Keep in mind that there’s an important distinction between performance management (a track record of the individual’s past and current contributions) and professional development efforts designed to impact their future contribution.
But growth and development plans alone aren’t enough. Designing and clearly articulating your firm’s compensation philosophy is also essential to attracting and retaining top talent. Your compensation philosophy can set you apart from other competitors in the search for future leaders, will help align your team’s objectives and work to company goals and, ultimately, help sustain your business long term by rewarding employees in a more consistent and understandable way.
Compensation Philosophy Builder Tool™
The following eight questions are designed to help you uncover and/or clarify the key elements of your firm’s compensation philosophy. Like your business mission and value statements, your compensation philosophy should serve as the “why” behind the reward system you have in place for your team.
- List specifics of how you want your compensation philosophy to help your business.
- How should your compensation plan compete in the marketplace (geographical and/or industry competitors)?
- How is base pay initially determined and then increased?
- What factors make up incentive compensation goals?
- How is an employee performance plan created, measured and delivered?
- What additional benefits does your company provide for its employees? Score each benefit according to the competitive edge it provides in your marketplace (1 – leading, 10 – lagging)
- How do employees advance in their career path?
- What other areas are important aspects of your business’ compensation plan?
More and more, forward-looking advisory firms are focusing increased attention on aligning their compensation philosophy and plan with their long-term business strategy. Rather than simply tying incentive compensation to firm-wide gross margin, successful enterprises are adopting novel approaches to reward quantifiable value that advisors create for their clients, incenting the adoption of cost-effective new technologies and exploring new and innovative customer engagement metrics.
The shift is on. Properly structured, your compensation structure can be a vital strategic business driver that helps to differentiate and drive your organization for years to come.
Coaching Questions from this article:
- Take some time to reflect on your current compensation model. How well does each individual’s compensation align with your strategic vision and the best interest of your clients?
- When you consider your current compensation model, are you incenting cooperation and generosity or fostering internal competition and conflict?
- What steps might you take to restructure compensation to address potential future issues and challenges?
- What compensation changes might you consider making to better incentivize next-gen advisors to step-up and take on the risks and rewards of ownership?