6 Steps for Building the Best Comp Plan for Your Firm
Why? Because employees often want to be part of robustly growing firms. If a firm isn’t growing quickly — perhaps because its owner has no desire to do so — then compensation must be increased to retain talent that is not able to grow through a career track.
Fast-growing firms don’t need to pay the highest compensation because compensation generally rises in tandem with growth; employees will stay and apply themselves if they know that they have the opportunity to earn a lot more down the road.
After clarifying their core values, service model and organizational structure, firms that want to create the right compensation structures must decide what they want their growth to be.
It’s critical to be honest and realistic in setting that target. Deciding that you want to double assets in two years, when you’ve never done that previously, is not helpful. What is helpful is to share a realistic growth expectation with all employees, so they understand the opportunities in front of them.
5. Set Up Career Tracks
Clearly defined career tracks can eliminate upwards of half of the compensation-related questions that an organization faces. Humans, by nature, want to grow.
Showing employees an achievable pathway to career growth — the extent of growth that they want and that you believe they’re capable of — will help lead to a clear compensation structure aligning core values, service models, organizational structure and career progression. These are the elements of the most effective and sustainable structures.
Unfortunately, most advisory firms go about the process of figuring out their compensation in backward fashion, doubling their work. They start with the question of what the comp structure should be.
Later, when they realize that that structure isn’t working, they might focus on creating career tracks. Career tracks don’t work, though, when growth goals haven’t been properly defined.
In such cases, leaders have no idea how to organize their teams. Finally, firm leaders bump up against culture and core values.
Backing into a compensation structure in this way, while also dealing with your employees’ questions, concerns and complaints, is needlessly time-consuming. Advisory firm leaders’ chief pain point has always been a lack of time, and creating a comp structure the right way can help with this challenge.
6. Take the Final Step
Once you’re clear on your firm’s core values, service model, organizational structure, growth projection and career tracks, how do you actually create your compensation structure?
The answer may be somewhat hard to believe, but two decades of consulting experience have proven its truth to me: If you do the work described above, the proper compensation structure for your firm will become obvious.
For example, if you’re clear that you want to double your growth, then you probably need to offer incentives related to business development. If you only want your advisors to work individually, then you should pay them little or no base salary but rather compensate them on the revenue they produce.
If you want employees to serve the clients that you already have, or to help you generate referrals, then you’ll probably want to pay a salary plus an incentive. And if you’re content to run a slow-growing lifestyle practice with a few good advisors, you might as well pay high flat salaries.
None of these compensation details can be determined, though, until you become clear on your organizational issues. The clarity that you achieve in going through this process will help the business succeed and deliver the best service to your clients, all while simplifying your professional life.
(Pictured: Angie Herbers)
