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How To Implement A Pay System Everyone Can Understand
Payday. The day famous for workers’ satisfaction, kicking back and reaping the rewards of your hard work. This is the day that employees walk a little taller (and might try to leave a little earlier.) We are just being facetious, of course. How a company pays employees is an important discussion and one that can get a little complicated.
We don’t think it needs to be that way. We believe that compensation is the primary driver of behavior in the workplace. And if people can’t understand how or why they are paid, they probably don’t understand what they’re supposed to be doing, because we all know compensation drives behavior.
Today, we want to untangle the mess of payroll and give you insight into how to pay your people.
Why Your Compensation Plan Isn’t Working
Odds are if you are having issues with your pay structure, it’s because it is too complicated. Some firms have compensation manuals that are 2 inches thick with confusing TWP jargon and impossible standards. These incomprehensive, indecipherable compensation plans aren’t good for business and they certainly aren’t productive or healthy for employee morale.
Why does a plan like this not work?
- It’s confusing to a majority of the team members
- It’s not transparent
- It fluctuates too often
- It doesn’t connect to the company mission
And the thing is, people care about how they are getting paid. One of the top questions we hear from advisors about practice management is “how much did you pay your staff?” And the number two question is, “How do you figure their bonus?” These questions are often uttered in a hushed tone, like a secret that everyone just has to know. Compensation is a hot topic.
One reason that compensation is such an important issue is that how you pay people is a major incentive. Incentivizing the wrong behavior is a big concern for employers everywhere. So designing a compensation plan should be done very thoughtfully. And when advisors ask questions concerning payscales and bonuses, they’re really asking tactical questions, and answers to such questions need to be rooted in some underlying philosophy. There needs to be a thought process that guides the design of your compensation plan.
Simply asking other people how much they pay their staff isn’t a coherent philosophy. It won’t match your mission. It won’t match what’s important to your firm. If they get one answer that’s 60,000 and 6 months later they hear 50,000 from another company, are they going to cut their assistance pay by 20%? The answer is likely no. So how can you develop a coherent strategy and philosophy around your compensation plan? Let’s find out.
Creating A Compensation Philosophy
We would like to start this section off by saying that every firm will have a different philosophy when it comes to developing a compensation plan. Our advice? Use your mission statement and build a plan from there. That way you are staying true to your company, values, and your staff throughout the process. Everyone’s philosophy may look a little different, but as long as you are sticking with your mission, you will be able to have a nice jumping-off point.
To best illustrate this point, we are going to talk about our unique philosophy and mission. Our firm’s mission at Credent Wealth is to guide clients throughout life’s most important financial events with service and expertise above and beyond client expectations.
Building off of that, our compensation philosophy is to pay salaries at the market value and then apply bonuses for exceptional work, bringing our employees pay above average. We do have offices in multiple locations and take into account average pay place to place. Each location has its own variance from the national average.
Essentially, our goal is that everyone receives above-average pay because they produce above-average results. This is the type of behavior we want to incentivize. We want our team to go above and beyond for clients and want to pay them in a way that reflects their efforts.
We take pride in the work our team does and aren’t afraid to pay them in a fair and honest way. One question we hear a lot about is our decision for every team member to be salaried. Let’s take a closer look at that.
To Salary Or Not To Salary?
This is such a good question and one that we spent a lot of time thinking and talking about. Our decision to salary all team members ties directly to our mission and compensation philosophy. In general, there are a few key reasons why we salary our staff.
- Being an employee grants access to group benefits like health insurance, disability, and 401(k) with a match. Our advisors and owners appreciate these corporate-level benefits.
- The company pays the employer’s portion of FICA, eliminating the need for quarterly IRS payments and self-employment taxes.
- Incentivizes good performance.
- Fits with company culture.
Too often in our industry, the word salary gets conflated with tenure—the idea that you get paid for life with a steady gig and no cares in the world letting your quality and level of engagement slip.
Based on the culture we create at Credent, we don’t run into this issue. All of our team members work hard to deliver on the mission and respect their fiduciary duty.
Another common way to pay advisors is to base compensation on how much revenue the advisor produces. This is the oldest compensation model in our industry and the eat what you kill model doesn’t align with our mission.
Remember, our goal isn’t to have the most productive advisors in the business, rather guide clients with service and expertise above and beyond what they expect. This winner takes all approach doesn’t incentivize guiding or service quality and certainly doesn’t support a team approach, something at the core of our practice.
Figuring The Coveted Bonus
Our firm has worked really hard to ensure our bonus structure is clear, transparent, and effectively communicated. The only reason we have come to a system that works is because we have tried a million that have failed. Let’s start by looking at the bonus structures that didn’t work.
- Discretionary or random bonus payments
- This confuses employees as there is often a disconnect between the bonus and the reason for it. This renders the bonus ineffective at reinforcing the right behaviors.
- When you always pay a Christmas or New Year bonus, but employees can’t really work toward that.
- This decreases employee morale and motivation.
- Annual bonus
- There is often too much time between the good work and the bonus amount.
- Pushing a product
- This incentivizes the wrong type of behavior and isn’t consistent with our mission.
After a lot of trial and error, we found that a quarterly bonus works best for our company. We charge our clients quarterly and analyze results quarterly so it makes sense that we pay bonuses on a quarterly basis too.
Great service and expertise result in high-client retention rates and introductions to more clients. And we feel every person at our office can make a difference in that. So every quarter, we look at the results from retention and new clients in our locations. Each location then gets a bonus pool based on the results. The bonus pool is then paid out to every member of the team.
It takes a whole team to serve clients with excellence, and we want to reward the whole team for their work. This is not, and I repeat not, an eat what you kill environment, and it isn’t random or a percentage of profits. Everyone knows how we’re doing as a team. So the bonus is connected very clearly to the actual work and results. It really is a bonus that is perfectly aligned with our mission.
By simply having a bonus structure, you are prioritizing your employees and that is wonderful. But there are always ways to improve to make your practices more aligned with your values and mission. That’s what we do here, we are always looking for ways to improve.
As you start to think about your own compensation plan, check out our free resource Who Does Your Staff Work For? Which can be found below.