Section 1: Hiring and retaining talent
- When is it time to hire a new employee?
- How hiring employees can save you money
- Commit to strategic hiring and avoid these four landmines
- Hiring the right staff to fit your needs is essential
- Pre-employment assessments deepend insight into job candidates
- Categorizing employees: Should you hire a lion, beaver, otter or golden retriever?
Section 2: Employee compensation and motivation
- Training and compensating junior advisors
- Developing, compensating and retaining a protege
- Design a simple bonus plan
- Knowing what employees want encourages long-term commitment
- Reduce turnover and encourage your staff with authentic appreciation
- Get employees with performance issues back on track?
- Non-monetary approaches to engaging staff
Section 3: Employee processes/managing employees
- The three components every employee handbook should have
- Evaluating employee performance
- Coaching vs. micromanaging to bring out the best in staff
- How effective leaders respond when employees make mistakes
- Build an environment of trust by following three steps
- Be a better listener to engage your employees
- Encouraging employee input can boost your bottom line
Design a simple bonus plan
Although almost all advisors want to keep their fixed costs low and shift as much staff compensation as they can to variable forms, most employees want just the opposite. So I know you won’t like hearing this, but bonus plans often don’t motivate employees.
Countless studies show bonuses have little impact on productivity. You would think people would put forth 10 percent more effort to get a 15 percent reward, but it rarely works this way. Sometimes you’ll see a team really pull together to push business through at the end of a quarter in order to get a bigger bonus, but I’ve found this to be the exception rather than the rule.
That said, if you’re like most of the advisors I speak with, you’d be saying to me now, “Lauren, what you say may be true, but I can’t afford to raise salaries, and I’d like to offer my employees something. Do you have a bonus template?” Yes, I do.
Let’s walk through my bonus plan concept and template. First, the concept:
- It has to be simple for your employees to understand. That means no convoluted metrics and no confusing terminology.
- It has to be simple to calculate. You shouldn’t have to bring in Ernst & Young every quarter to determine your numbers.
- It should reward team effort — and team effort is sometimes indirect.
- It should reward individual effort because not everybody contributes at the same level.
- It needs to be compliant.
- Additional points I would make are:
- I prefer bonuses be paid quarterly, not annually. If you have any chance of having a motivating bonus, the reward has to be frequent enough to be top of mind.
- There should be a written document that explains the bonus clearly.
Now for the how-to of the template:
Step 1: Identify your metrics. These should be the big things you always measure in your business. Your metrics are your metrics. Most typically we use these: revenue, assets under management and new target clients, but clients have used profits, premium and year-over-year growth.
Step 2: Set your goals. Your opening bonus level should be neither a slam dunk nor a stretch goal. It should reflect historically reasonable growth. Fifteen percent over last year is probably reasonable.
Step 3: Set your bonus amount. For this to be compliant, the reward for each metric should be an absolute number, not a percentage of assets, revenue or premium. The bonus amounts will probably not be the same for all your employees. The higher level the person, the more significant the bonus potential has to be. And, if you have any management positions on your team, in order to be motivating, the bonus probably has to equal about 20 percent of their salary.
Step 4: Set your bonus levels. The spread between the levels is up to you. But, I would caution you to make sure these are reasonably achievable.
Step 5: Make sure you have the right fine print. Here we are disclosing that the plan is in effect only for this year. (In case it’s not effective, we don’t want to be obligated to continue it.) And we’re disclosing who is eligible.
Step 6: Pass out the bonus reports and checks at a quarterly team meeting. Do it with fun and fanfare. This little extra bit of PR can really increase employee enthusiasm for the plan. This bonus, as I’ve just explained it, would meet all my criteria—it is simple to understand, is simple to calculate, rewards team effort and is compliant. But it doesn’t really reward individual effort. So let me show you how we layer an individual performance component onto the bonus.
First, we do our performance reviews quarterly, in which performance is scored. The bonus is factored by this score. So if the total bonus potential in a quarter was $1,000 and the employee received a performance review score of 90, he or she would receive a net bonus of $900.
Many of my clients tie in performance to the bonus like this. But they don’t all. Whether you choose to is up to you. The reason I combine these in one Excel workbook is that this truly is a process. Compensation is a function of performance — performance of the firm and performance of the individual.
The second way we use the bonus to reward individual performance is by paying a small bonus for processes developed by employees. You know how we all want written, repeatable processes to help us do the right things consistently and to help train new people? Well, your team doesn’t have time to write them. By paying a bonus for processes, we are acknowledging that this requires an above and beyond effort.
I want to share one more point about employee rewards. One of my favorite clients and an MDRT veteran is Andy Torelli of e3 Financial in Newport Beach, California. Andy showed me that sometimes the most beloved benefits don’t involve cash. At e3, every employee has every other Friday off. This is achieved by working 80 hours in nine days rather than in ten. The team has to have enough staff (at least two) so that people rotate their days off.
Everyone values work/ life balance, particularly your younger employees. Can you imagine your staff’s excitement at having every other Friday off? This perk will probably have more impact on your employee value proposition than an incentive plan.
So before you rush to design that bonus, think about noncash compensation alternatives as well.