It’s quite common for Elixir to assist firms who want to create a variable employee remuneration model, to provide additional incentive for staff to help the business reach their growth objectives and reward exceptional client service.
So we weren’t surprised that our Advice Operations Research report revealed that firms who paid bonuses to all staff when they do well enjoyed on average, an additional 4 per cent EBIT (earnings before interest and taxes) and the satisfaction rating for business owners was 11 per cent higher. Think about that – these firms had a higher wage bill by paying bonuses, and yet still enjoyed a higher profit margin. Of course, remuneration isn’t the only way to motivate staff, but it’s in the top five according to the report.
We find that clients will often want to pay their staff above market to attract and retain great people, but in a way that’s linked to business achievements rather than purely increasing salaries. In this way, they can ensure that their staff are rewarded for going above and beyond, and share in the upside of this activity, while reducing the possibility of paying above market salaries regardless of staff performance and business success.
Designing the right model however, can be tricky. Not only do we need to work within conflicted remuneration guidelines for financial advisers, but we also want to ensure there are no unintended consequences and the model doesn’t reward inappropriate behaviour that will cause detriment to clients or the business.
A cartoon illustration of a diverse team of five professionals standing together in front of colorful gears. They all look happy and confident, representing teamwork and collaboration.
It’s not surprising then, that many principals will tell us that they’ve been intending to create a bonus or incentive structure for their team for some time, but haven’t yet worked it out. This can have detrimental outcomes if their team are being approached by recruiters and they feel there are empty promises being made by their current employer.
Increasingly, we’re finding firms in the situation where they’re hiring new team members, and discovering that they’re inadvertently paying existing staff below market rates, as they haven’t kept up with increasing salaries being paid in a tight labour market.
Whilst they don’t want to take advantage of their loyal long-term staff, nor do they want to be paying new staff more than their experienced staff. In many cases, they hadn’t accounted for a significant lift in overheads, and so they need to implement activities in the business to build in sustainable salary increases.
This challenge is compounded by the recent change in legislation to ban the use of confidentiality clauses on remuneration in employment contracts. While removing secrecy around salaries will hopefully reduce the gender pay gap, this is putting some businesses in the position where they can’t continue to ignore inequities in salaries between new and loyal staff.
If you’re in this situation, there are a number of considerations to explore. We’ll focus here, purely on creating the remuneration structure rather than the strategies to maintain profitability while increasing payroll costs.
Start by working out the objectives you’re wanting to achieve by designing – or redesigning your rem packages. A few of many considerations here might include:
- Is there any particular outcome or behaviour you’re wanting to correct through the introduction of this model?
- Are you wanting to share profit/pay bonuses with all staff or just advisers?
- Do you want to include opportunity for equity in the model?
Next, consider any unintended consequences so that you can ensure your model mitigates them. Simplicity and transparency is key – we don’t want the model to be so complex that staff don’t understand it and therefore are not motivated by it or it’s too hard to administer.
Finally, you may end up deciding that you don’t in fact, require bonuses, but are comfortable in lifting salaries to pay above-market for the right people. If you’ve hired and managed well, you needn’t be concerned that staff will get ‘comfortable’ and run that fine line of not contributing enough to their role, but not perform poorly enough to warrant performance management.
Whether you implement bonuses or not, it’s important to structure your employee remuneration well, and regularly benchmark to industry standards, as part of your annual business planning. Beyond the remuneration conversation, managing your people and culture effectively is critical to not only ensure that your payroll grows in line with staff performance and business success; but that you can attract and retain the best people to serve your clients.
Ready to grow your business? Book your discovery call and speak to one of our experts. A discovery call will enable you to discover all you want to know about VBP AND enable us to discover more about your business so we’re better able to identify how (and if) we can provide the solutions you’re looking for.
This article was first published in Professional Planner magazine on 10 September 2024.