You have to be competitive in the recruitment market, so making sure that your advisers and support staff are correctly rewarded is very important. It may be a complex issue but you need to recruit and retain the right people to help achieve your business objectives.
These problems arise in many advice businesses:
- Lack of overall reward policy: that is principles and practice.
- Inconsistent remuneration for people in the same jobs: too many ad hoc cases built up over time.
- Arbitrary approaches to pay reviews and bonus payments: people in the same jobs end up with very different levels and structures of reward.
- No clear split between thereward for owners as employees and as owners: no clarity of the reward for doing the job and taking the risk attached to business ownership.
- Adviser reward too heavily linked to sales.
Your reward structure must be tightly linked to your business plan. Quite simply, this is because the way in which you pay people will determine what they do. Reward structures are based upon the following elements:
- Basic salary: for carrying out the core requirements of the job.
- Incentives: performancerelated and typical examples are commission related to sales, administration service standards, project completion, etc.
- Employee benefits: pension schemes, healthcare, etc.
- Perks: cars are main example.
- Profit-related: either as an incentive or equity participation.
The terms bonus and incentive are often inter-changed which can be confusing. An incentive is directly related to a pre-determined outcome, as described above, whereas a bonus is a one-off discretionary payment for something outstanding either at individual, team or business level.
The mix between these elements will vary between jobs.
However, it is important that all jobs in the business have a reward structure that includes each element if possible.
This means if you introduce profit share, everyone should take part. The typical mix is summarised below.
The support staff package is dominated by basic salary and benefits. The advisers have 50 per cent of their remuneration “at risk” while the adviser-owners have 60 per cent at risk.
Generally, the potential for high rewards is associated with higher degrees of risk, with the ultimate reward for the owners being the realisable
value of the business.
It is important to make a firm link between reward and treating customers fairly (TCF).
The characteristics of a TCFfriendly reward structure are:
- Low emphasis on achievement of sales targets alone.
- High emphasis on client satisfaction and service.
- Performance management that concentrates on securing the best outcome for the client and development for the individual.
- Reward for adherence to robust and compliant business practices.
- Recognition of sharing good practice with colleagues. In addition, you should design your performance management processes to identify how people can perform more effectively in their jobs and what training and professional development they require.
There is a strong emphasis upon people being properly trained for the jobs they do.
From an adviser perspective, there is clearly a move away from commission-only reward that is directly related to sales. That is why you would be wise to formalise your ongoing service proposition and reward advisers for service delivery as well as brand new business. This can be achieved by including any recurring revenues in the reward package for advisers to ensure that the service which the client has paid for is provided.
’Your reward structure must be tightly linked to your business plan because the way in which you pay people will determine what they do’
In addition you should include the achievement of good practice key performance indicators (KPIs) in your reward structure.
These can include:
- Achievement of ongoing service delivery targets- making sure that regular client reviews are carried out.
- Attainment of compliance standards.
- Advocating and supporting TCF best practices.
- Sticking to important corporate standards (for example, new business processes, use of common factfind, data management, etc.).
This will provide you with a reward structure that is more broadly based than in the past, requiring advisers and staff to achieve more than sales in excess of the previous year. That is not to reduce the importance of securing income and rewarding good performance but you should include additional factors in the overall reward framework.
The Business of Advice covers this in detail and the various approaches you can use to establish a fair and effective reward policy