We have heard of firms winning employee loyalty by paying them more, but never—until we spoke to the principal at Colorado West Investments—by paying them less.
At the Montrose, Colo.-based wealth management firm, that is what Kevin Sanderford ended up doing to rationalize the firm’s compensation plan. After the awful downturn in 2008, Sanderford had to lower compensation for his practice manager, who also had a series 7 license. She was not drawing a huge salary—indeed, it was below market rate for the area—but she received a generous bonus. Too big, apparently. Sanderford had loosely pegged her bonus the firm’s performance. Without a systematic payout, though, the extra compensation ended up being outsized.
Sanderford raised her salary and launched a more formal company-wide system for doling out bonuses. Employees now get quarterly bonuses of around 10%, depending on whether they meet personal goals in line with their positions, and an annual 15% bonus, depending on how well the firm does.
The result: the assistant with the Series 7 license ended up making less in 2009 and 2010 than she did in 2008. That did not provoke her to quit, though. She left last summer to have a baby, but has worked on various projects for the firm since. Sanderford left the door open for her to return in another capacity.
While restructuring his firm’s compensation schemes, Sanderford also instituted a system of putting a certain portion of her compensation into a brokerage account for the new practice manager, which vests after three years. “She liked that, and I’ll do the same for other employees,” Sanderford said in a recent phone call.
It sounded good to us, too—innovative compensation plans that motivate junior professionals to stay loyal to the firms. We are slowly but surely, the pundits say, emerging from the doldrums of the Great Recession. Although investors are not rushing off of the sidelines, pouring funds into brokerage accounts and swelling the managed assets of all the advisory firms out there, professionals can find ways of sharing profits with their employees.
Sanderford is exploring another interesting compensation technique: tying a forgivable loan to riverfront property. He owns a 40-acre residential development, also in Montrose, along the Uncompahgre River. He plans to offer one of the 11 lots, worth about $100,000, to Josh Freed, a junior advisor at the firm who passed his Series 7 exam about a week ago. The plan is to offer the new advisor a 10-year loan to buy the lot. Sanderford would reduce the outstanding loan by $1,000 and raise the advisor’s salary by the same amount for every month that he stays with Colorado West Investments. If the advisor leaves the firm before the loan is paid off, he would have to repay the balance. Sanderford says he hopes to have that plan in place by the summer.
“My goal is to reward him, and his family, by encouraging him to stay with me,” Sanderford said. “I’m taking a piece of land along a river, an asset that is not producing anything ... to make him more loyal. It is not costing me anything.”
As the only producer at Colorado West, Sanderford is also trying to groom a strong bench of advisors that will boost revenues at the firm.
An advisor—or employee at any other firm, for that matter—might bristle at the thought of owing almost everything in his or her life to an employer. But Colorado West Investments is simply taking the forgivable loan incentive that many wirehouse firms offer advisors already use — and adding a pastoral view in southwestern Colorado. The flipside of that situation, certainly, is that the advisor has a sense of ownership in the firm, and will probably work hard to make the company successful.
Past successes suggest that Colorado West’s incentive plans are on the right track. The company increased its revenue from $700,000 in 2008 to well over $1 million by the end of 2010, Sanderford said. In 2008, it served about 90 families, and in 2010, it served 144.
By giving his employees such generous bonuses and incentives, Sanderford is also eating his own cooking. He has a 53-year-old client who wants to retire from running his business. The only way he can afford to do that is if key employees stay at the firm and sustain it. Colorado West Investments developed a stock gifting plan that will gradually transfer ownership of the company to them over five years.
“The reason that client will do it is because it is in his best interest,” Sanderford said. It seems, then, that sharing the rewards of a company’s triumphs is good for everyone.