"If your employees get to share in the rewards of the firm, they will be more motivated to help you make it successful. Your compensation system is the most powerful extrinsic motivational tool that you can use."

The Dream Team

By John Bowen

In our business, a client-centered focus is just as crucial as investment management skill, so it's important to work only with "A" players—people who share your commitment to client service. A world-class staff will not only provide your clients with the consistent, quality experience they deserve, it will help differentiate you from your competition. In an environment in which it is increasingly difficult for investors to distinguish one advisor from another, this is a critical advantage.

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The substantial task of building a world-class team is easier if you break the process down into its three distinct parts: hiring, compensating, and providing rewards and recognition.

Rather than running "help wanted" ads—ineffective filters—I recommend using a hiring process that identifies individuals suitable for participating on your team to ensure the workability of your practice. Here's a step-by-step process:

1. Write a job description. Define the detailed description of the job and the type of person you want in the position.

2. Identify likely companies. Identify the most likely places that such a person would be working in a similar job.

3. Hire an identification firm. Consider hiring an identification firm (not a headhunting firm).

4. Make the calls. The identification firm then makes the calls and identifies the individuals at the targeted companies who hold such a position.

5. Contact the individuals. Once you've identified the individuals, contact them, describe the job and ask them to send in resumes. You typically will receive between 10 and 100 resumes, depending on the position.

6. Hire as a consultant. Candidates need to have both something at risk and something to gain. You want to be able to see how they work under pressure. If they aren't working full-time, hire likely candidates as consultants to draw up a proposal of how they are going to add the most value to your organization over the next 12 months. Give them two weeks to interview the team members whom they will be working with and a few of your clients. Then ask them to prepare a presentation for the group. This helps you evaluate not only their presentation skills, but their ability to hit the ground running as well.

7. Evaluate the candidate. You and your team evaluate the candidate, which creates a sense that everyone is involved in the hiring. If each team member feels personally responsible for bringing that person in, then everyone is more likely to do everything humanly possible to help the new person succeed.

8. Decide to hire. Make the decision to hire the candidate after your evaluation. If you choose not to hire the candidate, then repeat steps five through eight.

By its 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 it to work as an incentive, compensation must keep up with what's offered in the marketplace and also increase as a person brings more value to the business. Ideally, it's a win-win situation for both the company and the employees. Design your employee contract so it reads: "If we're successful, you're successful." If your employees get to share in the rewards of the firm, they will then be more interested in their work and more motivated to help you make the firm successful. Your compensation system is the most powerful extrinsic motivational tool that you can use.

Unfortunately, most employees feel they have little or no impact on overall productivity. They have little sense their pay is tied to performance or affected by it. If they can save the firm a little money, they don't personally share in the gain. In a study by Meek and Associates, 73 percent of employees felt quality and effort have little or no impact on their pay. Only 9 percent believed they would personally benefit from productivity gain. The study also revealed that 1 percent of compensation for employees is based on incentive programs for variable pay. So there's plenty of talk out there about pay for performance, but not many are successfully implementing the concept.

Not surprisingly, most advisors still reward their employees with increased pay for increased tenure. Some forward-thinking practices, however, now pay for performance, skills, productivity, knowledge and contribution. At these firms, individual compensation is variable and often tied to tangible, overall results.

You want your employees to be motivated to move from seeing themselves as employees to acting as entrepreneurs within the company structure. Advisors value teamwork, but their compensation plans don't reward it in any meaningful way. There is also lots of chatter about delivering a "quality experience" for clients, but there is no incentive pay for employees to ensure this happens. In addition, there often is little difference in pay between a great employee and a mediocre employee. Look at your own employees—often only a few dollars a week take-home pay difference exists between your best and worst employee. Your compensation structure should allow your employees to commit to continuous improvement in their knowledge and skills and to focus on teamwork and results. You need improved flexibility in a rapidly changing environment. Compensation that is based on meeting client needs assures a response that better matches demand.

In addition, your compensation program needs to reinforce teamwork and create open channels of communication. Variable pay should be based on the success of the firm, partly due to teamwork and partly to individual performance.

Consider paying individual contributors based on what's important to them. The motivating factor will be different for everyone. If in doubt, include your employees in any compensation planning—they know what motivates them.

To ensure your compensation program works, your employees must help to determine company goals, team goals, individual goals, and the resulting compensation. We've all been taught that if we just do our job and remain with the firm, we can expect an increase in pay over time. If you want your employees to become more entrepreneurial in spirit, you must let them share in the risks and rewards of creating a successful asset management business.

A major component of your compensation system should be an evaluation program. At the core of successful evaluations are written performance plans that describe goals for each employee.

Conduct quarterly progress reviews based on each individual's performance plan. These reviews are essential for you to determine if each person is on track, and they are your opportunity to provide feedback on performance compared to goals, as well as to coach employees on areas of possible improvement. A study by Albert Bandura found that when a manager provides a combination of goals and feedback, the result is an almost threefold increase in "effortful performance," compared to when only goals or only feedback are provided.

Also, all employees should conduct a self-evaluation plus an evaluation of their peers' strengths and weaknesses every six months. Rather than focusing on weaknesses (which everyone has), capitalize on the strengths of each person. What information is important in an evaluation, however, is often open to question. The goal is to move from day-to-day noise to information that is really important in accurately evaluating performance on all levels—from attitude and effort to the level of contribution to achieving the firm's overall goals.

You may find compensation alone is not sufficient to achieve and sustain the level of motivation that your employees need to perform at world-class levels. Recognition (in the form of plaques, gifts, merchandise, travel, training in exotic locales, etc.) and rewards (in the form of bonuses, awards, perks, etc.) can be used to reinforce important attitudes and behaviors that contribute to success.

Recognition and rewards are subject to the same limitations as all extrinsic reinforcements (when the rewards end, so does the desired behavior) and are never as powerful as the intrinsic motivation that people derive from their own accomplishments and problem-solving successes. But they remain an important tool for rewarding the behavior you want to encourage from your employees. The most meaningful rewards are creative, memorable, personalized, and timely. If possible, they should recognize a particular behavior.

Finding highly qualified employees and getting top performance from them is an ongoing challenge for advisors. But your clients deserve a world-class team, and the future of your business depends on successfully assembling it.