David brown doesn’t hire new employees very often. The sole active advisor at Al G. Brown & Associates in Toronto says the 14 support staff on his team tend to stick around. “Basically, people work here until they retire,” says Brown, a certified financial planner.
In an industry in which employee turnover is rampant, Brown thinks the firm’s unique compensation structure is a major reason for his team’s longevity and success.
In addition to base salaries that are adjusted annually to reflect the consumer price index, employees receive a bonus in the form of a percentage of the firm’s profits. The amount is determined by a formula that takes into account the team member’s years with the firm, as well as whether he or she attained individual and team goals.
“Subjective bonuses create no relationship between the quality of work and compensation,” Brown says. “We want our people to come up with different ideas and be rewarded for it.”
Profit-sharing, based on the firm’s net income after expenses, creates even more incentive to boost the bottom line. In a good year, an employee’s bonus plus profit-sharing can be the equivalent of 30%-40% of his or her base salary. No wonder no one leaves.
“We want each of our employees to be entrepreneurial. And in order to accomplish that, we needed a reward system,” Brown says. “A straight salary structure just doesn’t provide incentive.”
Brown & Associates’ compensation system is an anomaly in the industry, however. According to Julie Littlechild, president of Advisor Impact Inc. in Toronto, most firms compensate support staff with a base salary plus a subjective bonus, while advisors in a team tend to operate on commission plus bonus. However, this simple structure is seldom the best way to motivate staff. Instead, Littlechild suggests combining a base salary with two bonuses — one based on individual performance and the other on the team’s performance — as a more effective method of motivating both individual employees and the company as a whole.
The first step to developing a compensation structure that works is determining an employee’s base salary. It is also the first place that many advisors go wrong.
“A base salary should reflect what you consider to be the right compensation for an employee who is meeting your expectations,” says Littlechild. A well-defined job description will give you a good idea of what the role is worth. But asking around also helps. “No one in the industry tracks compensation. But most people are forthcoming when asked,” she says.
One thing that never should be taken into consideration when calculating an employee’s base salary is his or her potential bonus. “A bonus is just that — a bonus,” says Sandra Foster, president of Toronto-based Headspring Consulting Inc. “There has to be a reason for it.”
Both Foster and Littlechild say many advisors are reluctant to give employees less than a full bonus — often due to the fact that all parties involved consider it a part of the total salary package. As a result, the bonus does not work as an incentive because it’s assumed and not to earned.
Instead of using a bonus to top up a scant salary, start with a fair base and develop a bonus structure toward which employees can strive. Brown’s staff are familiar with the bonus formula and, at the beginning of the firm’s fiscal year, each person sets personal and team goals (to be realized on either an annual or a 90-day basis).
“This way, they have an indication of what the bonus might be, and something to measure against as the year goes on,” says Brown.
The experts say a bonus that takes into consideration both personal and team goals is the best method of motivating staff. “A bonus needs to be something over which an employee has some control,” says Foster.
However, not all roles within a team have an obvious relationship to the firm’s bottom line, such as the position of receptionist.
You can overcome this obstacle by developing measurable processes for all employees. “We needed to translate how a receptionist brings income into the business,” says Brown. “So, we developed a seven-step process that our receptionist follows every time a client walks into the office.”
@page_break@From the moment they arrive, clients should be treated to a high level of service, including the option of ordering a drink or snack. As clients come to enjoy visiting the office, it eliminates the need to meet elsewhere, ultimately saving Brown time.
“You might not immediately see a direct linkage, but it’s there,” he says. “By making sure that I concentrate on the things I should be doing, that, in turn, generates more income for the business.”
Profit-sharing also gives Brown’s employees an incentive to reduce costs. “They are aware that if they use company money to buy anything new for the office, it affects the bottom line, which affects the profit-sharing,” he says.
There’s no arguing with the dangling carrot that profit-sharing creates. But it may not be the best option for all firms, Foster says: “It’s hard to use in the earlier years, when it may be wiser to put the money back into the business.”
Brown’s firm, founded by his father, was in business more than 50 years before profit-sharing was implemented.
“Both the advisor and the employee must be willing to make the leap,” Brown says. “If you have an employee who wants a set increase per year, this structure won’t work for them.” IE