Tips for Structuring Team Compensation and Titles
Many years ago, as a young branch manager, I was thinking about the compensation model of our industry. I had a small epiphany when I began to think about why we are called brokerage firms rather than brokerage companies. It’s because from inception we were built and managed very much like legal firms, where partnership equity and payout directly reflected your status as a “rainmaker.” And while all of the wire houses and many of the independent players are no longer partnerships but publicly traded companies, the basic compensation and recognition model still reflects this partnership model. The more revenue you bring in, the higher your payout (equity) in that revenue. As we move further away from the sole practitioner model, into a multidimensional synergistic team structure, we may have to slightly reorient how we define and compensate a variety of roles that drive the team’s overall productivity both directly and in many cases indirectly. Which is more important and compensable: to attract new business to the team or to construct and execute a high retention, high margin comprehensive wealth management capability? I believe the correct answer is, “it’s a tie.”
With that in mind, here are three variables to consider when constructing a long-term team compensation structure.
- Movement Towards Parity: Notice I said movement not achievement. Depending on the disparity of both age and gross production, actual parity may never occur. What you are acknowledging is the evolution of the junior partner in their overall impact on the practice and its performance. Following our “legal model” we have broken financial advisors into three categories: associate, junior partner and senior partner for both recognition and compensation purposes.
- Measure Activity Not Just Results: Whenever possible focus on activity rather than just results. I can control what I do, there are occasions I cannot control the results. I would rather monitor someone’s exercise and nutrition program, rather than to simply weigh them once a week. This helps me guide and coach someone much more effectively and short-circuit problems and challenges early before someone is derailed.
- Balance Growth and Service: As you go through and determine the three critical objectives for each associate and junior partner that will have the highest level impact on the team’s overall performance you want to balance growth and service. For high performance teams, associates should “major in” their education, development and client service, while “minoring in” business development and growth. When they moved to junior partner these flip. Senior partners should spend the majority of their week focusing on business development and growth while working as the “lead architect” (working closely with their other junior and senior partners) for their top 25-50 households.
The Constructing a Synergistic Team Toolkit to delve deeper into the topic of developing long-term compensation structures.
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