Create a Pay for Performance Culture
By George Tamer and Scott Leak
A formal performance-management process enables a firm to proactively measure individual performance, reduce subjectivity, and clearly tie incentive pay to performance. According to the 2009 FAInsight People and Pay Study, even among Standout firms there is significant opportunity to more actively manage individual performance. Only 65% of Standouts conduct performance evaluations, and of that group, only 26% rate their performance-management process as highly effective, with a notable 67% of these firms reporting only a “somewhat effective” performance management structure.
Continuing our theme of practice management, in this post we’ll dig into the nuances of maximizing your human capital by focusing on how to motivate your staff by creating a pay for performance culture.
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While easier said than done, tweaking your compensation structure is something you’ll want to think long and hard about as it has far reaching implications for the long-term health of your firm. From our experience as a custodian working with thousands of advisors, we’ve been able to capture a framework for how incentive compensation can be applied to the independent RIA firm.
Start by determining what your compensation system says about your firm values. Is teamwork important? Are individual accomplishments celebrated? Is customer service and satisfaction paramount? Let me give you three simple words to get the process started: Measure, Manage, and Reward.
Typically, one of the best ways to begin in designing your incentive compensation plan is to link the objectives desired to specific individual measurements. For example, criteria to consider for measurement could be improvements in specific areas like new client growth or referrals over a specific period of time, such as quarterly or annually. You want to dig into the specific actions your staff takes to get to the measured results. For example, to find new clients, first, you need to meet with prospects. So you may have a specific meeting count that you want staff to achieve each quarter to qualify for their bonus.
The next step in the process is to create performance standards and establish the appropriate rewards. This can be done by clarifying the objectives and desired results of staff performance and ensure that each member of the team understands how incentive payments can be achieved and not achieved. For example, “holiday” bonuses or other arbitrary awards that are not attached to individual achievement, but are rather just handed out for being there won’t provide a true motivational aspect, as they are not linked to any specific outcome. But going back to the meeting example, staff knows that prospect meetings are important to new client growth and that if x number of meetings are held each quarter they will be rewarded. Management comes into play by checking regularly throughout the quarter to see if meetings are occurring.
One of the more important aspects of how successful an incentive compensation plan plays out is in how well it is communicated. Ensuring that there is a culture of open communication, that feedback is encouraged and solicited regularly and that each staffer understands their role in the plan goes a long way towards aligning performance with desired outcomes. As a manager it is your job to get staff to understand why “x number of meetings” are important. It’s that type of activity that drives new clients to the firm.
This part seems simple but it needs to be done right with full transparency and also allows for people to work to exceed their goals. Through proper management reporting staff should know where they stand in relation to the metrics, and what the payout is when each metric is hit. For example, 50 meetings may qualify you for 100% of your quarterly bonus, 35 meetings only gets you 50% of your bonus and 75 meetings gets you 150%. Creating individual objectives which are clear should allow employees to be able to estimate their own production.
Because markets change, staff turns over and new skills and experiences are brought into the firm, it is also important to continue to review and monitor the incentive plan to ensure that desired activities are increasing, that direct business results are achieved and that both staff and management continue to be motivated.
By doing these things, you’ll have created a pay for performance culture in your firm and can help you on your journey to joining the elite ranks of the best advisory firms in the industry.
George Tamer, Director, Strategic Relationships, TD AMERITRADE Institutional
Scott Leak, Manager, Strategic Relationships, TD AMERITRADE Institutional
TD AMERITRADE, Inc., member FINRA/SIPC. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Past performance of a security does not guarantee future results. All investments are subject to investment risk, including possible loss of the principal invested.