Mitigate Compliance Risk in Your RIA Through Operations
October 3, 2023Using Benchmarks to Decentralize and Spur Organic Growth
October 17, 2023Building an Incentive Program for Your RIA: Nurturing Success and Growth
For many RIA owners, success lies not only in astute financial decisions but also in fostering a motivated and engaged team. However, anytime you’re dealing with people, things can get complicated. Fortunately, there is a way to align your vision for the future with your team’s individual aspirations. In today’s entry, I’m going to explore the role an employee incentive program plays in attracting, retaining, and empowering talent, as well as helping you reach your eight-figure exit.
Follow Along With The Financially Simple Podcast!
This week on The Financially Simple Podcast:
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(1:45) Attract, engage, and retain talent
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(3:35) Incentive programs can drive profitability
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(5:13) How does an incentive plan tie into the eight-figure exit?
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(6:31) What should be included in your employee incentive program?
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(7:33) The importance of recognition and bonus pay
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(12:03) Ten easy steps
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(21:26) Something I’ve never seen in business before
Align Your Team & Your Goals with an Employee Incentive Program
An employee incentive program is an engine of engagement, designed to align the aspirations of your team with the goals of your RIA. These programs offer rewards and benefits that inspire positive behaviors, driving both individual growth and company success. As an added benefit, an employee incentive program acts as a beacon for attracting talent while nurturing a sense of loyalty and achievement.
Numbers that Speak: The RIA Landscape
According to the Charles Schwab 2021 RIA Compensation Report, nearly three-quarters (74%) of firms used a form of performance-based incentive pay in 2020. Likewise, one in three roles within firms tied compensation to revenue generation in the same year. This shift towards performance-based compensation underscores the industry’s recognition of the link between incentives and productivity.
Profitability remains a driving force behind effective incentives. In fact, a 2022 blog by Mercer Capital states that “In markets like today’s, where RIA margins face the dual threat of rising costs and declining AUM, compensation mechanisms that directly link employee pay to firm profitability have the additional benefit of helping to blunt the impact of market conditions on firm profitability.” Yet, profitability isn’t the only driver motivating RIAs to create an incentive program for their employees.
Disengagement among employees leads to high turnover rates, low productivity, and significant financial losses, costing the U.S. economy up to $550 billion annually. As a result, organizations around the globe are recognizing the importance of incentives. In fact, incentive programs are big business, with the incentives industry now being valued at over $100 billion, $46 billion of which is attributable to non-cash incentives. So, how can you create an effective incentive program?
Tailoring Incentives for Different Roles
Friends, your incentive program can’t be a one-size-fits-all approach. The diversity of roles within an RIA calls for tailored incentives. But why? Well, different roles serve very different functions. For example, your firm’s marketing director might be bonused on reaching a particular number of qualified leads. On the other hand, an operations associate could be incentivized based on the Total Profit Margin of their department or the company. Recognizing these unique contributions ensures that incentives truly resonate with each team member. Additionally, not all incentives have to be monetary.
The Power of Time Off
Offering additional paid time off is more than just a perk; it’s an investment in well-being. The New York Times reported on a study by the Institute for Health and Social Policy at Mcgill University. They found that “investing in employees’ mental and physical health yields dividends for companies.” Therefore, giving employees the chance to earn extra time off rejuvenates their minds and bodies, resulting in reduced turnover rates and increased engagement.
Underscoring this idea, the study gave an example of an Australian auto parts company that adopted a more flexible policy on leaves and vacations. After implementing this incentive, turnover fell to 3 percent a year from nearly 20 percent. However, sometimes a simple recognition or acknowledgment is enough to incentivize your team.
Recognition: Fuel for Motivation
Recognition is the cornerstone of creating a culture of appreciation. Acknowledging employees’ contributions fuels their sense of value, fostering security and motivation even during periods of growth or change. Folks, there’s a reason why businesses featured on the Fortune 100 Best Companies to Work For list excel in employee engagement.
Hilton Hotels is a great example. The company developed an annual recognition calendar filled with no- or low-cost ways to acknowledge the work of their team members. Because the hotel chain prioritized employee recognition and incentives, they have a 97% employee satisfaction rate.
The Bonus Boost
Of course, you can never go wrong with cold-hard-cash. Offering cash bonuses is a common and effective tool when employing an employee incentive program. In fact, a Payscale report reveals that 78% of organizations offer variable pay. Although this number is about the same as last year’s finding, it has risen around eight or nine percent compared to several years ago.
However, there’s a fine line to walk when setting bonus criteria. You must have clear metrics and objectives that are balanced between attainable and challenging. If the criteria aren’t transparent or are too easy/challenging it will fail. Similarly, it’s important to offer incentives based on the overall success of your firm as well. My dear friend and colleague, Michael Kitces, says, “It’s good to reward retention of existing clients as well as the winning of new ones,” offering bonuses on the overall success of the firm under the AUM model.”
Professional Development
Investing in employees’ holistic growth also pays off. Indeed reports that offering professional development opportunities as an incentive can motivate employees to work harder while also nurturing their skills in the workplace. Similarly, the University of Phoenix states that “Professional development programs promote higher levels of employee engagement, and engagement is a key factor in the success of a team. In fact, research shows that engaged teams are 17% more productive than disengaged teams, and they have 21% greater profitability.”
Unique Experiences as Incentives
Non-financial recognition plays a pivotal role in driving employee engagement. A study by McKinsey & Company found that up to 55% of employee engagement is influenced by non-financial recognition. The report went on to say, “This insight is congruent with our findings that an employee’s decision to leave is often driven by not feeling valued by the organization or their managers.” Friends, offering customized experiences that align with your teams’ preferences, not only inspire engagement but also contribute to a lasting sense of value.
Implementation Strategies for Incentive Programs
Now, we understand the value of employee incentives. We also have an idea of some of the ways to incentivize employees. but how do you implement an incentive program? Let’s explore some of the keys to a successful rollout.
- Timing is Everything. The timing of your incentive programs matters. Choosing between monthly, quarterly, annual, or even strategic one-time incentives depends on the nature of your RIA’s objectives and the rhythm of its operations.
- Assembling the Winning Team. Strategizing and implementing incentive programs require collaboration across departments. Involving management, HR, and Finance ensures a comprehensive approach that aligns incentives with business goals.
- Setting S.M.A.R.T. Goals. Clear objectives are critical. S.M.A.R.T. goals (Specific, Measurable, Achievable, Relevant, Time-Bound) provide a framework for designing incentives that encourage targeted performance improvement.
- Determining Eligibility. Who can earn the incentives? Defining eligibility helps tailor incentives to specific roles. By focusing incentives on relevant teams, you ensure that they are relevant, impactful, and aligned with the objectives.
- Driving Participation and Buy-In. Involving employees in shaping the incentive program can enhance participation and buy-in. Seeking their input in designing incentives generates a sense of ownership and increases motivation. Additionally, this can help you determine the types of incentives your team will value most.
- Creating a Rewarding Structure. Balancing program structure and budget is crucial. Open-ended programs provide flexibility but require careful budgeting, while closed programs have predetermined costs while offering clarity.
- Tracking and Fulfillment. Creating a system to track employee progress and reward fulfillment maintains transparency and keeps participants engaged. Quick reward fulfillment reinforces engagement and enthusiasm.
- Evaluating Success and Celebrating Achievements. Then, you must evaluate the program’s impact on performance and engagement. Data-driven insights help refine future incentive programs. And finally, make a big deal of it. Celebrate successes to reinforce the value of achieving objectives.
Wrapping Up…
Friends, incentive programs are a powerful tool for creating a thriving culture in your RIA. They transform routine tasks into purposeful actions, align individual aspirations with collective success, and empower employees to go the extra mile. By understanding the purpose of incentives, crafting tailored plans, and strategically implementing them, you’re laying the foundation for a motivated, engaged, and high-performing RIA team. Remember, just as a well-plotted incentive program motivates employees to push the boundaries of success, your commitment to nurturing their growth fuels your RIA’s journey toward excellence.
Look, I know life is hard, but life is good. Motivating your team to achieve the goals that drive an eight-figure exit can be frustrating. It doesn’t have to be. By carefully designing and implementing an employee incentive program, you can make aligning your team’s desires with your firm’s goals at least financially simple. Hey, let’s go out and make it a great day!
Do you have further questions about how to roll out a winning incentive program? Could your march toward the eight-figure exit benefit from an outside perspective? Reach out to our team to learn how we could help!