To know whether you are offering a competitive wage, you need to properly articulate the roles and responsibilities of each employee. Doing so enables you to make comparisons between your plan and what employees in similar positions at other firms are being paid. (It also helps you measure an employee’s success in their current position.) “It’s such a basic step, but too often it’s neglected,” says Philip Palaveev, CEO of The Ensemble Practice, a business management consulting firm in Seattle.

Outside resources such as the Department of Labor, the website PayScale, industry surveys, or even other job postings, can help you identify salaries for comparable positions. A consultant can also assist with this step. Regardless of the source, however, that wage information is a necessary step to setting a competitive salary that will attract and retain the kind of talent you want.

You have a budget, and it’s important to allocate the money you have in the most effective way possible. Part of this process involves identifying which employees are most instrumental to supporting the goals of the firm, and then making them your priority. This type of salary differentiation may already exist between your advisors and support staff, but consider creating different pay levels among the advisors themselves. One common approach is to create salary levels that are tied to factors that provide measurable value to the firm, such as tenure or experience in the position or firm. Another factor might be an advisor’s credentials, offering higher compensation to those individuals who hold additional designations such as a CFP or ChFA. And if your firm stresses an integrated approach to wealth management, you might establish a higher pay rate for advisors who step into a team leadership position.   

A salary rewards your employees for fulfilling the responsibilities identified in their job description, while incentives award them for going beyond those assignments. Most firms use a combination of both, and it’s important to find the right balance between the two—a balance that supports your goals and your team. Too much of one or the other, and you could end up putting stress on your advisors or leaving them unmotivated. In particular, a plan that’s too reliant on incentives can alienate advisors or erode the sense of loyalty they might feel towards the firm. “Plans in which incentives represent more than 25% of total compensation can put undue pressure on younger, lower-earning advisors,” Palaveev explains. “They don’t make much in the way of guaranteed income, so if they don’t produce, they don’t get paid a living wage.”

Another element worth considering in your compensation plan is a path to ownership or partnership at your firm. Many advisors, particularly those with more experience in the business, aspire to a leadership role or executive position. And for most advisors, leaving a firm to start their own business is the only way to achieve that goal. A powerful incentive, therefore, is offering advisors the opportunity to fulfil their career ambitions without having to go independent. A path to partnership for top employees can also be a good motivational tool for younger advisors who have similar ambitions. “It can push those advisors to work harder and advance toward the point where the same opportunities could be extended to them,” says Dr. Kehrer. “In effect, it encourages them to start thinking about their own career path and their future with your firm.”

Salaries and bonuses are critical pieces of a compensation plan, but they aren’t the only ones. In today’s competitive environment, firms use a host of complementary benefits to differentiate themselves from their competition. What’s more, these perks, such as health insurance, paid leave and retirement plans, represent more than just financial compensation; the extension of those benefits demonstrates your commitment to your employees and your willingness to invest in their well-being and success. These benefits can also be helpful in terms of advisor retention. An advisor who has a robust insurance plan through their firm might think twice about going independent where insurance could cost them thousands of dollars monthly. Similarly, paying a percentage of an employee’s salary into a deferred compensation plan, which they become vested in down the road, can go a long way towards encouraging your most valuable employees to stay with your company.

A successful compensation plan is one that you can adapt to changes in the market, the goals of your firm and the needs of your employees. To stay competitive, you’ll need to revisit your plan periodically, evaluating both how industry compensation standards have changed and how the plan is working for individual advisors and for your firm. For example, a particular incentive may have motivated one or two advisors, but your firm failed to achieve an important goal. In that case, adjusting the incentives may be necessary to motivate more advisors.

It takes time and effort to keep adjusting your compensation plan to reflect your needs and the needs of your employees, but the effort is worth it. “The ability to surround yourself with and consistently motivate great talent is what drives your success as a firm,” says Palaveev. “Employee compensation is not an expense—it’s an investment.”