"By its very nature, compensation is the reward for a job well done. Too often, however, a good employee ends up with only one big reward—more work."

Team Players

By John Bowen

As a business owner, you're acutely focused on building a great practice. But is your staff equally devoted? The fact is, you're only as good as the team you build—especially when you consider that your clients may have at least as many interactions with administrative assistants or junior partners as they do with you. That makes it essential to surround yourself with "A-player" employees who are highly motivated to help you maximize your success.

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The best way to do that: Use a highly organized and systematic approach to compensate, evaluate and motivate each of your employees. These are three key areas of practice management, yet they're often overlooked by advisors who focus only on marketing and client acquisition. As a result, problems can arise—such as different levels of compensation for employees doing the same job—that threaten your ability to develop and maintain a great staff.

By developing systems for employee compensation and rewards, and communicating them clearly throughout the firm, you'll avoid such problems. You'll also become more efficient in your day-to-day business responsibilities, freeing up time to redirect your energy toward fostering better client relationships. In addition, your employees will clearly understand what you expect from them.

Most important, you'll build more equity in your business. Systems help ensure that your business runs smoothly and that its success is less dependent on you or any single individual. If you eventually decide to sell, your company will likely receive a higher valuation if it runs like a well-oiled machine that a new owner can easily plug into.

LINKING MOTIVATION AND COMPENSATION

Your compensation system will be based on your overall business planning efforts. To be successful, you must first establish strategic and financial goals. A good way to do this is to hold a semiannual, companywide planning retreat to set the goals and strategies for your firm—ideally using an outside facilitator.

Following the retreat, have each staff member submit his or her goals that are consistent with the firm's overall objectives. Integrate these goals into your business plan, thereby giving everyone in your firm some level of input to the planning process and making them more likely to be motivated to help the firm succeed.

Your compensation system will largely come from this planning. By its very nature, compensation is the reward for a job well done. Too often, however, a good employee ends up with only one big reward—more work. For compensation to work as an incentive, it should not only keep up with what is offered in the marketplace (you should never lose an employee to a competitor over compensation), but should also increase as an employee brings more value to the business.

Ideally, it's a win-win situation for both the company and the employees. Your goal should be to design your employee contract to read: "If we're successful, you're successful." If your employees get to share in the rewards of the company, they will be more interested in their work and more focused on helping you make the company successful.

Unfortunately, most employees believe that they have little or no impact on overall productivity. In a study by Meek and Associates, 73 percent of employees felt that quality and effort have little or no impact on their pay. Only 9 percent believed that they would personally benefit from enhanced productivity. The study also revealed that only approximately 1 percent of all compensation for employees in the United States is based on an incentive program of variable pay. In short, there's plenty of talk about pay for performance, but few successfully implement the concept. That scenario provides you with a true opportunity to build a better system that helps distinguish your firm from the run-of-the-mill—and attract the crucial "A-players" you need.

So how do you make compensation as powerful a motivator as possible? Tie it to results. Shift compensation from the traditional design, in which the focus is on base pay, to variable pay, where the focus is on performance. The aim is to develop self-directed and motivated employees, who will move from considering themselves mere employees to considering themselves entrepreneurs within the company. Your compensation structure should not only encourage your employees to commit to continuous professional improvement, but it should also encourage them to be consistently results oriented. For a typical advisory firm, that means growth in total assets under management, gross revenue and net income.

TRACKING PROGRESS

Quarterly progress reviews based on each individual's performance plan are essential to determining whether everyone is on track. Regular reviews keep workers focused on their personal goals as well as the firm's goals. Frequent evaluations also help you spot any potential problems with employees while avoiding unpleasant surprises that can have a negative impact on your clients.

Use these reviews as an opportunity to offer feedback on each employee's performance compared with the goals he or she set during the business planning process. One well-respected study by Albert Bandura shows there's an almost threefold increase in "effortful performance" when managers offer a combination of goals and feedback.

It's also helpful to separate a job evaluation review from a salary review. Face it: When you tell employees about their strengths and weaknesses, they're waiting to hear one thing—the size of their raise. Better to discuss their performance at one meeting and save the salary meeting for another time.

In addition, have your employees conduct self-evaluations and evaluations of their peers every six months. Instead of taking the traditional approach—that is, focusing on weaknesses—have them pay more attention to the strengths of each co-worker. The "right" information to cover in an evaluation is open to interpretation and will depend on your own firm and its objectives. The key, however, is to move away from the day-to-day noise and hone in on the information that is most important in assessing performance in all areas, including attitude, effort and actual contributions toward the overall goals.

Customer satisfaction surveys are another useful component of an evaluation system. We conducted two to three of these surveys each year at my old firm and used them to help assess each employee's work and subsequent compensation.

It also pays to create a culture at your firm that encourages and rewards professional growth. Chances are, some of your internal people want to become advisors (or at least move up the ladder). As those employees become more knowledgeable and experienced, offer them opportunities to grow within the organization.

MORE RECOGNITION

Advisory firms are recognizing that compensation alone isn't always enough to achieve and maintain the level of motivation that is required to build a truly superior business. Additional forms of recognition and rewards—from gifts, plaques, travel, bonuses and even professional training in exotic locations—are frequently being used to reinforce the successful motivational attitudes and behaviors that drive firms to higher levels of success.

In general, these types of rewards are subject to the same limitations as are the external forms of reinforcement—that is, the desired behavior ends when the reward ends. The intrinsic motivators that people derive from their own accomplishments—such as the ones previously mentioned—are more important to long-term success. That said, supplemental rewards may prove to be powerful incentives if they are:

• a surprise
• personalized
• delivered in person
• timely
• given in recognition of a specific behavior
• given frequently but in small amounts
• creative
• given in public
• accompanied by the reasons for the reward

At my old financial advisory firm, we had great success with a rewards program we called Bowen Bucks. Each time an employee did a great job or was complimented by a client, we gave out $5, $10 or $20 in Bowen Bucks. Then for our annual Christmas party, we would purchase DVD players, TVs, high-end kitchen appliances and other items from a local wholesale club, and the staff would be allowed to bid on this merchandise using their accumulated Bowen Bucks.

These rewards worked on several levels. The initial presentation of the Bowen Bucks created a good feeling. Later, the Bowen Bucks enabled employees to obtain gifts. In addition, those gifts would remind our workers and their spouses of our firm every time they used them.

Your employees are just as vital to your success as that huge client you hope to land, so you've got to make sure that they are constantly being motivated to do their best at all times. Your goal must be to create an entrepreneurial spirit throughout your firm that will drive your employees to reach the next level of success. Allow your employees to share in the risks and rewards of creating a world-class advisory business. If you do, they'll help ensure your success today and for decades to come.