Why you need staff partnership not staff incentives
If you want everyone in the business to be pulling in the same direction then you need a true partnership mentality between the owners of the business and their team, argues adviser business consultant Brett Davidson
In our profession we like to think we understand incentive plans. Most advisers have worked in the commission-only sales world, so often this is how they still pay themselves and other advisers within their business. However, a package comprising a base salary plus a performance component also fits into our current definition of an incentive plan.
What do you do?
When you think of your own pay, and performance issues in your business does your incentive plan:
• Motivate the recipients?
• Reward the right behaviours?
• Create a partnership mentality across the whole business (with both front-office and back-office staff)?
• Lead to dramatic increases in business performance and overall value creation (i.e. increased profits and business sale value)?
There seems to be a perception that offering people bonuses or larger percentage splits of revenue will guarantee motivation. If this were true, all staff on such an incentive package would be your top producers. This is rarely the case. As Gino Wickman says in his book Traction: “you can’t pay, force, motivate or beg someone to want it”.
In fact some so-called ‘incentive plans’ see advisers in many firms doing so well that there is little incentive for them to work harder or achieve more. They behave like ‘takers’ rather than ‘contributors’ to your business success, which seems counter-productive.
How often do you hear business owners moaning about the behaviour of various members of their team? Sales people who write unprofitable business, because for them there is no ‘cost’ of doing so – they act in their own best interests, not those of the business. Back-office staff who are unable to prioritise what’s important, because they get paid for turning up, not for prioritising or improving back-office systems and processes. Amazingly, all of these people usually receive a Christmas bonus, even if the business is just doing ok. This seems a bit mad.
It’s only in the very best firms where I see a true partnership mentality between the owners of the business and their team. Sadly, I could probably count those on one hand. In most firms there is a clear distinction between owners and employees in the way they think and behave. This can also be the case between front-office and back-office staff. In some firms I would even go so far as to say the relationship is antagonistic – hardly a partnership mentality.
So what’s the solution?
Ken Gibson of The Visionlink Advisory Group, is a specialist in remuneration and incentive planning. He believes that the traditional thinking around incentive plans doesn’t work. Views such as: carrot and stick, change behaviour, getting people to do things they don’t want to do, and motivating people to “do the right thing” are wrong, in Ken’s opinion.
Introducing a new compensation plan should be about communicating what’s important, so execution aligns with your business model. The important factors include:
• Expanding the company’s market reach and audience
• Staying ahead of trends and being responsive to the marketplace
• Codifying expectations and accountability for staff
• Managing change and encouraging innovation
• Becoming a magnet for the best talent.
There are four areas that need to be addressed for all staff members:
If these are all addressed in a way that your staff can see and understand, then you create an environment that can lead to superior performance.
There are five principles underpinning the philosophy:
Principle 1 – Partnership
Everyone must feel like a partner in the firm. Anything less and you’ll only get average performance from some of your team.
Principle 2 – Clarity
There are four questions to ask each member of your team:
1. What does the future of our company look like to you?
2. What do you think are the most important things that have to happen for us to grow and succeed?
3. What contributions are you most excited about making to our growth?
4. Why is the creation of our future company important to you?
Don’t expect world-beating answers to these questions. Typically, people are not really in a position to answer them in a meaningful way. However, it starts the change process and their responses will help inform you as to future communication and education strategies you’ll need to engage.
Creating an internal communications ‘campaign’ helps every team member get perfectly clear on how you, as leader of the business, look at these four questions.
As leader of the business you must clarify:
• Business goals
• Business strategy
• The roles that will need to be fulfilled
• Descriptions of the kinds of people you will need on the journey.
All partners (the team) must understand:
• Where you’re headed
• How you’re expecting to get there
• How they can contribute
• What it could mean to them.
Principle 3 – Engagement
Create a ‘we’ mentality. All partners (the team) must:
• Have something to strive for that has meaning and purpose
• Have responsibility and the freedom to execute on the plan
• Know they will participate in the results
Principle 4 – Practices
‘How’ you pay people is different to ‘how much’ you pay people. It’s imperative to get the ‘how’ right.
The ‘partnership’ philosophy underpins this key question:
How should you pay your team, to give you the best chance of fulfilling your business purpose?
Shareholders are entitled to a fair return on capital. You can pay above-market returns for above-market performance. But if you don’t reach your performance standards you don’t expect to pay above market rates.
Make it clear that you expect your team to:
1. Respect the shareholder investment
2. Earn what they get.
In return, you can then ensure that your team’s three primary needs (Lifestyle, Security, and Long-Term Accumulation) can be met.
Principle 5 – Productivity
Incentives are paid if you do just hit the numbers. But to avoid creating an entitlement mentality & complacency, you need to ensure that the really big rewards are paid only if you do that AND achieve measurable improvements in productivity. This focus is very important as it challenges and stretches people, and drives the innovation that keeps your company ahead of its competitors.
Compensation philosophy is an area that requires some work in most financial planning firms. Spending some time working on this area should be a real priority for firms looking to become great, as it lays a solid foundation on which your greatness can be built.
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