\u201cCoach\u2019s Forum\u201d is a place in which you can ask your questions, tell your stories or give your opinions on any aspect of practice management. For each column, George selects the most interesting and relevant comments from readers and offers his advice. Our objective is to build a community of people with a common interest in making their financial advisory practices as effective as possible. <\/i>
> Creating A New Incentive Plan<\/b>
Advisor: <\/b>I am fortunate to have a great support team of three people working in my practice. We weathered the market meltdown of 2008-09 reasonably well by doubling our efforts around client contact and service and, as a result, our revenue in 2010 was actually slightly higher than it was prior to the economic collapse. And 2011 is also ramping up to be an even better year for us.
I believe that in a business such as ours, my team\u2019s compensation should be based partly on salary and partly on results. We have always had a profit-sharing or bonus plan in place that recognizes our performance relative to our objectives.
Under that plan, we simply set a revenue target and the team splits 20% of any excess revenue equally. Some years, that amount was substantial; however, in 2008 and 2009, I suspended all bonuses. This was done partly to manage expenses in light of our lower revenue, but also because our results never met our plan. Now that we are back on track, so to speak, I know everyone is expecting me to reintroduce their incentive-based compensation and even to make up some of the amount that was forgone in the past two years.
While I believe in rewarding results, I fear that under our current plan, bonuses have become an expectation rather than an incentive. I\u2019d like to introduce a new plan that more effectively recognizes contribution and results. Any suggestions?
Coach says: <\/b> Congratulations on rebounding from the potential calamity of the past couple of years. As you note, good results should be rewarded, so recognizing your accomplishments and those of your team in a tangible way is appropriate.
Managing expectations around incentive-based compensation can be challenging. Throw in the impact of a market disaster and making difficult decisions about whom to reward and how to best reward them can make end-of-year bonus time tough. But, again, you are correct. You can use this opportunity to revamp your plan so that it does what you want it to do: reward results and boost morale.
There are too many variations, combinations, ratios, etc., that you could use for me to describe them all adequately in this space; however, following are a few things you might consider in designing what would work best for you:
> Reward The Results You Want<\/b>
As you didn\u2019t mention any constraints on the design of your plan, such as the dealer firm\u2019s policy, I am assuming you have complete entrepreneurial freedom to be as creative as you\u2019d like. In that regard, one of the first things you will have to decide is what behaviour or results you want to recognize and reward.
One theory holds that people who do a \u201cjob\u201d that is not linked directly to results should only \u2014 or largely \u2014 be paid a salary, whereas those who achieve measurable results should receive a greater percentage of their compensation through incentives.
That could mean, for example, that your receptionist would be salaried only, whereas your marketing manager might earn a combination of salary and a bonus, based on the success of your marketing program in attracting new clients. The challenge, however, is in measuring their relative contribution. Who is to say that it isn\u2019t the strong relationship your receptionist has with current clients that encourages them to bring a friend along to the seminar organized by your marketing manager? And, should those friends turn into clients, who should get credit \u2014 the salaried receptionist or the performance-compensated marketing manager?
In my view, unless there is a clear \u201ctask only\u201d job being done, such as that of a part-time bookkeeper, everyone should share any extra rewards in some way. This does not prevent you from rewarding your star employees at a different rate for their extra efforts in order to retain them, to encourage repetition of such behaviour in the future and to motivate others to follow suit.
Discretionary compensation is most effective in motivating and retaining employees when it is linked to specific accomplishments. Treating others equitably, however, has the additional benefit of fostering a joint sense of mission and building team spirit. Just be sure you don\u2019t inadvertently create a free ride for underperformers.@page_break@> Do They Know What You Are Rewarding? <\/b>
Everyone in your practice should know what has to happen in order for them to receive any extra compensation. If possible, avoid using a single metric. Sticking with our marketing manager example, \u201cnumber of bums in the seats\u201d at seminars would not be a good performance measurement unless those attending met your target market profile. Similarly, \u201ccutting our office supplies expense\u201d may backfire if it means you start serving cheap instant coffee to your clients instead of the freshly brewed cappuccino they have come to look forward to. You don\u2019t want to reward performance if it was done at the cost of efficiency or effectiveness, or if it is in conflict with your organization\u2019s values.
Remember, too, that money doesn\u2019t fix all problems and that a bonus should be just one part of a year-long process to reward and retain employees; bonuses won\u2019t make up for all your performance-management sins throughout the year. And don\u2019t kid yourself: employees talk about their compensation to each other and, particularly, when discretionary amounts are involved, news of who received how much spreads quickly. So, ensure your incentive program is clear and can be discussed openly.
> Money Can\u2019t Buy You Love<\/b>
Some advisors award bonuses or share part of their profits because they want their team members to \u201cfeel good\u201d about the advisor and the practice or company. But, in fact, that approach can have the opposite effect, especially if bonuses are something people expect rather than something they feel they have to earn. Over the past couple of years, I have seen a number of situations in which people who had come to rely on their yearend bonus as simply a form of deferred compensation were very disappointed when they didn\u2019t get it because of cutbacks to cope with decimated revenue. In some instances, they had already made substantial commitments for the money and had placed themselves in dire financial straits.
Also keep in mind that a monetary reward isn\u2019t always the motivator we\u2019d expect. In fact, numerous surveys have shown that many people would prefer to know they are doing a good job than get more money. Nor is money a substitute for good management. The extent to which people feel their contribution matters and how they are treated every day is often far more important.
Instead of relying on bonuses to create goodwill, get to know your team, understand what uniquely motivates them individually and create incentives around that. I have seen, for example, cases in which a $100-a-month public-transit pass meant more to a young employee with heavy family obligations than a $2,500 bonus at yearend because it allowed her to avoid the expense of owning a car and driving to work every day.
> Delivering The News<\/b>
Telling people they are getting extra compensation seems as if it should be an easy conversation, but that\u2019s not always the case. Whatever incentive amount you give, be sure you communicate to the recipient why they are receiving it. The more specific you can be about his or her value to the organization, the more likely the person will try to repeat, or better, that performance.
If the reward is generous, encourage the person to continue his or her high performance and provide stretch targets for the next year. If the employee was expecting more, be sure to emphasize the broader context of your approach to incentive-based compensation, highlight his or her contributions and detail what he or she might do to earn a bigger bonus the following year.
> Remember The Rest Of The Year<\/b>
The best way to avoid shock or disappointment around incentive-based compensation is to keep everyone on your team informed throughout the year about the progress your practice is making toward its objectives \u2014 financial and others \u2014 and the impact the trending results will have come bonus time.
If it looks like you might not be able to award extra compensation as anticipated, look to other motivational levers, such as advancement opportunities, recognition and communicating how proud you are of everyone\u2019s contribution. As noted, non-monetary rewards can often have a positive effect on employee morale, commitment and ongoing efforts in challenging times.
We\u2019d be delighted to hear from any advisors who have a compensation program that is working well for them so that we can pass it along to others.\tIE<\/b>
George Hartman is president and CEO of Market Logics Inc. and a senior coach and facilitator with the Covenant Group. Send questions, comments and opinions of any aspect of practice management to
george@marketlogics.ca. <\/i><\/p>\n","protected":false},"excerpt":{"rendered":"
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