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Are you compensating your employees competitively?

July 27, 2023
clock 6 MIN READ

Your compensation philosophy is important to maximize the performance of your financial advisor business and team.

Paying a competitive market salary, short- and long-term compensation, and non-monetary benefits are essential to attracting and retaining talent.

In the “Scale with Talent” blog series, we’ve explored best practices around hiring and onboarding. Next up is compensation, which is not only important to win but also retain talent. In this “Ideas from the Lab” blog post, we’ll explore best practices around compensation from an advisor business owner’s and employee’s perspective.

In a recent RIA Community conversation on talent, we heard from 15 firms in a pre-call survey. We asked respondents about the components of their compensation model. Interestingly, there were eight different responses, which highlights the varied compensation philosophies firms take.

There are three key components of compensation:

  1. Salary
  2. Short-term incentive compensation (e.g., bonuses)
  3. Long-term incentive compensation (e.g., profit sharing, equity, or equity alternatives)

Let’s take a deeper look at each of these forms of compensation, the roles they play, and how to use them effectively to retain, reward, and motivate your team.


Human capital consultant and owner of Cruz Consulting Group, Kelli Cruz, joined our RIA Community call on talent and emphasized the importance of using benchmark data to determine if you’re paying fair total compensation.

Paying a competitive market salary—and bonus—is essential to getting and keeping talent.

Salaries vary based on role, geography, and years of experience. Benchmark data can help you understand what’s fair salary and total compensation for individual roles. If you aren’t sure if you’re paying competitively, it’s time to find out.

Use benchmark data such as the InvestmentNews Pricing, Profitability, and Compensation Study, which SEI sponsors. If you are paying below market, consider adjusting salary and/or incentive (at once or gradually) to get your team in line. Make sure you communicate the changes to impacted individuals to reinforce their value and your commitment to them.

Ideally, your staff knows when and how salary is adjusted to manage expectations.

Short-term incentive compensation (e.g., bonuses)

Depending on the role, you may pay out a short-term incentive in addition to a salary.

Often, at a certain point for individuals, salary growth slows and incentive potential increases. Short-term incentives or bonuses provide a way to motivate and reward the right behaviors and outcomes without committing to a fixed expense for the business, which helps owners manage profitability. There is no one right way to structure bonuses, but there are a number of best practices and common mistakes to avoid.

Bonus best practices:

  • Document and clearly communicate your bonus plan, which is tied to individual or team-based outcomes. Document it, communicate it, and share it, over and over again. Providing transparency on the metrics that impact bonuses can help your team do the right things between payout periods. It also helps you avoid disappointment and surprises during payout periods.  
  • Craft bonuses to reward the right behaviors and outcomes. For example, if your advisory firm is in growth mode, then aligning everyone’s bonus around growth activities or outcomes makes sense. If you are not in growth mode or growth is not an expectation for certain employees, then aligning their bonus to growth outcomes doesn’t make sense. Instead, you may focus on what outcomes they should be generating such as retention, increased productivity, etc.
  • Fund incentive compensation with strategic initiatives to support sustainable growth for the business and employees.
  • Avoid having too many goals. Cruz suggests keeping it simple and not having more than four goals that drive incentive compensation.
  • Pay out bonuses more than once a year. Paying twice a year or quarterly, based on performance, can help you direct and reward the right behaviors throughout the year and smooths out cash flow for your staff.

Avoid these common mistakes:

  • Year-end “holiday” bonuses that are not tied to anything. After receiving a random one-time bonus a couple of times, it likely will become an expected part of someone’s compensation.

Paying out on a revenue or grid model. In this model, as the business’ revenue grows, so do compensation expenses, which makes improving a firm’s profitability challenging.

Long-term incentive compensation (e.g., profit sharing, equity, or equity alternatives)

With the risk of ownership comes reward in the form of profit sharing.

There are many ways to structure long-term incentive compensation. How you do it depends on your business and the individuals involved. An important first step—regardless of how you structure incentive compensation—is to get a firm valuation to understand how much your practice is worth today.

Creating ownership paths can be a powerful way to retain and motivate future leaders and protect your succession plan. Be proactive—don’t wait to develop ownership paths in response to a key employee’s request or due to their exit.

Sample compensation types and goals by role


Technical/advice-based roles

(e.g., financial advisors)

Service-based roles

(e.g., client service)

  • Salary, and
  • Short-term incentives (e.g., bonuses), and
  • Long-term incentives (e.g., profit sharing)
  • Salary, and
  • Short-term incentives (e.g.,bonuses)
Sample goals:  
  • Profitability-based goals
  • Productivity-based goals
  • Growth
  • Strategic projects (e.g., hiring key employees, completing business transitions, etc.)
  • Completion of key deliverables in service model
  • Number of relationships served
  • Business development outcomes and activities
  • Referrals (individual or team-based)
  • Project-based goals
  • Successful new client onboarding
  • Training
  • Project-based goals (e.g., building workflows and gaining adoption)
  • Referrals (team-based goal)

When it comes to team-based goals, Cruz reminded us that a team can be two people, the entire firm, or a subset of the firm.

If you’re looking to maximize your enterprise value for a future buyer, Cruz shared that buyers and firm valuation models prefer:

  • Taking a team-based approach—clients are clients of the firm, not an individual
  • Long-term incentives that support a team-based model, such as shared equity ownership
  • To not pay retention payouts to keep staff
  • Compensation that’s tied to drivers of business success

Non-monetary benefits matter, too

Maximizing income is the top priority for some, not all, employees. For many employees, non-monetary benefits such as health insurance, paid time off, retirement savings plans, flexibility, etc. matter, too.

Just like you do for your clients, how you communicate a prospective and current employee’s overall benefits package can help them fully understand and appreciate their total compensation package. At the end of the day, it should feel like a win-win for you and your employees. If it’s not a win-win, then it may not be a good long-term fit. 

Your compensation philosophy is important to maximize the performance of your business and team. The keys are to have a plan, pay competitively, align incentives to the right business outcomes, and don’t underestimate the importance of non-monetary benefits as part of your compensation package.  

Stay tuned for the final blog in the “Scale with Talent” series on effective management and leadership to get the most out of your people investment.

Important information

The information provided is for informational purposes only and does not constitute an opinion by SEI. SEI Investments Company (SEI) is not responsible for the views and opinions expressed by Kelli Cruz. Kelli Cruz and Cruz Consulting Group are not affiliated with SEI. SEI cannot guarantee the accuracy or completeness of the information and assumes no responsibility or liability for its incompleteness or inaccuracy. They should not be regarded as legal opinion, advice or a recommendation of a specified course of action.

Shauna Mace, CHPC

Head of Practice Management

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