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December 21, 2012   Executive Team Blog

Staffing and compensation

By Matthew T. McClintock, J.D.

A thread recently came across the WealthCounsel Members' listserv from a longtime member in California who is going through the process of deciding whether to hire an associate and how to structure incentive compensation in a way that is meaningful for the associate and makes sense for the firm.

The biggest issue I've seen in filling any new position is in getting really clear about understanding the needs of the organization - i.e., why we are hiring/what problem we're trying to solve - and being clear inside the organization exactly what success looks like when the role is effectively filled. For what it's worth,  one of the things we are working through inside The WealthCounsel Companies is institutionalizing a really solid, objective interviewing process that we're adapting from the book "Who" by Geoff Smart & Randy Street. Here is the link on Amazon: http://www.amazon.com/Who-Method-Hiring-Geoff-Smart/dp/1400158389
We naturally have tendencies to gravitate toward people who are somewhat similar to ourselves and lose sight of the objectivity required to make a new hire a real win - both for the company/firm and for the candidate. This is essential because the company must fit the employee, just as much as the employee must fit the company. 
One of the most important components going into a hire is creating a clear "scorecard" so you and the potential hire have a really clear understanding about the reason you have a position to fill in the first place, and what "success" looks like in objective, measurable terms. This goes much deeper than a job description, and it changes every time you assess the need to fill a vacancy, even if you're refilling a position left by someone else. The organization's needs change, so the picture of success also changes. The process also makes you take a hard look at what really defines your culture so you can more objectively figure out whether the candidate is a culture fit, beyond having the requisite skills to accomplish the task at hand.
To the second issue, creating incentive compensation is a shifting science. I generally think that for an incentive compensation model to be effective you should budget a percentage of an employee's base compensation as available for bonus comp. For example, assume you pay a staff person $50,000 in annual salary. You might set aside a maximum of an additional 20% of their salary that could be available as bonus if their performance is mind-blowingly awesome (but tied to clear and objective metrics).

You should incentivize the behavior and outcomes that matter most to your firm's success, as driven by the employee's actions. Are you mostly concerned with getting work to flow? If so, perhaps the number of completed plans or the "turnaround time" from intake to output should be incentivized perhaps more than other behaviors. If you want to incentivize regular contact with existing clients, maybe you put a premium on client retention, client follow up (on additional work), estate administration efficiency (perhaps measured in time between intake and distribution or other benchmarks you identify as important), etc. Those outcomes can be measured objectively and tracked pretty easily, so they become the benchmarks for establishing success in the incentive comp plan. Those benchmarks MUST get reexamined every 12 months at least. You can also consider doing it semiannually or quarterly, whatever makes the most sense for the firm. 

If the employee hits 90% of the benchmark, maybe they qualify for a 7.5-10% bonus available (in our example, $3,750-$5,000 bonus). If they hit 95%, maybe they get 12.5-15% bonus ($6,250-$7,500 bonus). If they hit 100% of the benchmark, maybe they max out the 20% bonus. Maybe you even put another kicker in there for 105%+ of the benchmarks. 

But the science of incentive compensation doesn't just shift, it's inexact. You and the employee need to be able to revisit the structure and benchmarks periodically as business dynamics change. Most importantly, the value you pay to the employee in incentive compensation must be representative of the value their performance against the benchmarks helps the firm, and can't be weighted in the employee's favor - in other words, you can't structure the bonus in a way that allows the employee to be overly compensated for the value their performance delivers to the firm's bottom line.

There are many ways to deal with these issues and the right model will differ from one firm or company to the next. But getting really clear on what success looks like for the role you're filling and effectively tying incentive compensation to objective metrics of that success is the real art behind this process.
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