As competition for talent increases, the best way for RIA firms to hold on to top-tier employees is to make it worth their while.
Implementing a smart compensation plan can pay off big when it comes to winning -- and keeping top talent, according to Schwabs 2014 RIA Benchmarking Study which highlights three major steps firms can take to motivate employees across all levels.
According to Schwab, the data represents the largest study of its kind with roughly 900 RIA firms representing almost 8,000 employees across 21 positions responding to the survey.
While compensation takes up nearly three-quarters of firms total expenses, in 2013, 50% of new-hires surveyed by Schwab said they left one RIA firm to join another.
[Its] vitally important for firms to develop well-planned and cost-effective ways to incentivize top-tier employees to join and remain in their ranks, Nick Georgis, vice president of Schwab Advisor Services, said in a statement announcing the datas release. The most successful firms are doing this by establishing operational discipline to manage the growth of their business, and part of that discipline includes sharpening their compensation philosophies.
ALIGN COMP & GOALS
The highest-performing firms develop compensation plans that support their existing business strategies, the survey shows. Aligning a compensation plan with performance goals makes employees more likely to strive for greater productivity.
Issuing regular performance evaluations reinforces and confirms that compensation plans are aligned with firm goals, while helping employees track their career development. Linking the two increases the potential for greater firm-wide profit, according to the study.
Compensation should also go beyond salary, the study demonstrates. Setting fair base salaries is important for better job performance, but the most attractive compensation plans offer a little extra.
While the study shows base salary accounted for 88% of total cash compensation in 2013, 91% of all employees surveyed received some form of incentive compensation from their firms. These incentives included:
- Medical insurance: 80% of firms
- Dental insurance: 46% of firms
- Other benefits (including long-term disability, fully paid maternity/paternity leave):nearly 50% of firms
The study found that offering additional incentives like benefits, non-cash compensation and a path to ownership or partnership helped link firms goals with employee behavior.
PATH TO OWNERSHIP
The largest, most profitable firms establish formal paths to ownership more often than smaller firms. Thirty-two percent of firms with over $1 billion in assets added new equity owners in 2013, while only 8% of firms managing less than $250 million in assets added new owners.
By expanding the number of partners in the business, more employees actively work towards long-term growth and share responsibility maintaining the overall health of the firm, Schwab contends.
Talent management is an essential focus for firms, especially as founders and principals look to develop the next generation of leaders and build enduring enterprises, Georgis said. Competitive and comprehensive compensation packages, along with clear paths to partnership help ensure retention of employees within a highly competitive talent environment, setting up firms for success now and into the future.
Maddy Perkins is a contributor to Financial Planning and OnWallStreet based in New York.
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