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All through the month of October I’m going to be exploring remuneration strategy. That is, how do you effectively remunerate the different people on your team so that they are happy, engaged and contributing.
Why?
- It’s a vital part of building your amazing financial planning business.
- Business owners and managers are constantly asking me questions about tricky situations related to remuneration.stion, you will tie yourself in mental knots.
A fabulous resource you can lean on for all things remuneration is a book called Scaling Up Compensation: 5 Design Principles for Turning Your Largest Expense Into a Strategic Advantage by Verne Harnish and Sebastian Ross.
Many of the ideas I’m going to share with you are based on their source material, with my own financial planning knowledge and experience thrown in.
One of Verne Harnish’s core concepts is this. When it comes to your remuneration strategy “get it right and out of sight”. Then everyone in your business can focus on the real work of serving clients every day.
Be Different – Align Remuneration With Culture and Strategy
Your pay system should reflect your values and reinforce the right behaviours.
A great example is an Aussie removals firm – Mini Movers.
One of the biggest costs for removal firms is insurance against breakages. The cost of cover can be anywhere from 3% to 10% of the job fee.
The owner of Mini Movers spoke with their team and said if we can move stuff and not break anything we’ll save that cost and I’ll share it with you.
The result?
A very careful, totally aligned removal team who get paid better than the industry average and a company with a great reputation for not breaking your stuff. It’s a win/win/win and came out of thinking strategically and aligning pay with the company’s values.
Think of your people as an investment rather than a cost.
MIT professor Zeynep Ton came up with the idea of a Good Jobs Strategy. This means paying significantly higher salaries than your competitors, whilst enjoying lower labour costs per unit and higher profits because your employees are more productive. The extra investment in your team generates behaviours that create a win/win/win for customers, employees, and shareholders.
The Container Store (a US company) has a simple motto – “1 equals 3”. They believe that one good person can do the work of three average people and so they hire and train for that and pay appropriately.
So where do you start?
There are two initial components of your well-designed remuneration strategy:
a.) Total Rewards Strategy
When you are designing and eventually explaining your approach to remuneration it needs to be a total rewards approach, not just salary. See the list of possible components below:
Possible Cash Components
- Base pay (salary)
- Merit/Cost of living add-ons
- Short-term incentives (if appropriate – and I’ll cover this in my next article)
- Long-term value sharing
Possible Benefits
- Allowances (e.g. car, living, relocation)
- Services (childcare)
- Insurance (income protection, health insurance, life insurance)
- Pensions
- Formal training
- Work/life (holidays, time off, home working etc)
Relational Rewards
- Recognition and status
- Employment security
- Meaningful and challenging work
- Informal learning opportunities
If you dive into this toolbox of components, you’ll need to communicate this really well to your existing team and any new potential hires looking to join.
Most discussions I hear about seem to get stuck solely on salary.
Now clearly, you might design a total rewards package no one wants. That’s not what I’m recommending. If a current staff member or potential joiner doesn’t value pensions or profit share, or private health cover, then you’ve wasted your money. So think carefully about all of the competing angles and what your employees truly value as you design your remuneration for each team member.
You need to get base salaries right as your starting point but don’t end there.
b.) Equitable Pay
You need to recognise the differences in performance among people doing a similar or the same job.
Think fairness, not sameness.
For example, one administrator could be ‘good enough’ at their role, while another very experienced administrator is a superstar who can do anything accurately and fast.
The range of pay in your job descriptions for an administration role should reflect that. So in designing and communicating the pay range for the admin role you might say it’s between £18,000 – £45,000 pa. (Not in your job adverts, but in your internal documents and job specs)
You can put more detail around what knowledge, skills and behaviours you would see at different levels of experience and match the remuneration accordingly.
That range might seem ridiculously large, but you want to have the scope to reward high-quality people who might not necessarily want to move into a different role (e.g. paraplanner) just to earn more money.
You may never pay anyone £45k for an admin role ever, but your pay range gives you that freedom should you need to.
The same goes for an adviser role and this is a classic case.
You might have two advisers doing ‘supposedly’ the same job. Both service existing clients and see new clients. But one is clearly more skilled in new client acquisition (supported by data as well as observation). The servicing adviser might be on £x and the adviser who can skillfully onboard new leads is on £2x.
When you explain the skill levels in an adviser job spec you need to capture these nuances and show people what they can earn as they master each new skill (use ranges, not a fixed figure as I outlined for admin – for the same reasons). More qualifications, although important, are not the same as developing better skills.
By mapping this out in writing, and explaining the skills required, you nip in the bud silly conversations about getting paid more money. People can see what they need to learn to be earning at the next level.
Good communication is at the heart of this strategy.
A word of warning
DO NOT copy remuneration strategies from other companies. You need to think about your own culture and values and your own strategic challenges and design your remuneration around that.
Next week I’ll look at some of the other components of remuneration like incentives, bonuses, profit sharing and the like.
Related: The Truth About Sale and Succession