‘Needs-based’ Pay Policy
Use Maslow’s hierarchy of needs to help set your firm’s compensation approach and prompt growth.
Find growth by using Maslow’s hierarchy of needs to help set your firm’s compensation approach.
“Show me the money!” is a line you probably remember from the movie “Jerry Mcguire.” The film focused in a comedic way on a well-known financial objective: exceptional compensation for superior performance. For advisors, there are many forms of compensation. When you discuss this topic with someone in your firm, you should be clear on what type of compensation you’re talking about. The ways in which people are motivated by different forms of compensation to satisfy physical and emotional needs are described in detail in Abraham Maslow’s classic 1954 book, “Motivation and Personality.” The key to your success is understanding how each advisor should be compensated and having a well-thought-out plan so you can elicit maximum performance from employees at any emotional level of Maslow’s hierarchy. The critical question for business owners and managers: How do you develop those advanced levels of advisor compensation? To develop a completely comprehensive compensation system, a quick review of Maslow’s needs hierarchy is necessary. Maslow described his first four levels as deficiency needs (shown in the table “Maslow’s Hierarchy of Needs”), because he believed that everyone is initially deficient in these areas.
People are motivated to satisfy their first level needs (L-1), then satisfy L-2 needs, and so on. I don’t write about or suggest things that require work without a good payoff, so I’ll tell you about what’s happened at my firm, Savant Capital Management, during the past 5½ years. We increased assets under management an average of about 17% annually to $6 billion from just under $2.5 billion. By comparison, the S&P 500 increased at 13.2% annually during that same period. A majority of our AUM growth wasn’t from acquisitions or market gains. Our total portfolio contains a significant amount of fixed-income securities and our portfolio average annual growth was less than 10% during that period, so about 8% annually had to come from elsewhere. The winning paymentplan system for your firm must consider the emotional needs of advisors across the wider spectrum. Our best-in-business organic growth was the result of our advisors bringing in an immense amount of business during this period. A large part of our advisors’ motivation for this effort was our comprehensive compensation program. Want to know what you can do to enhance your own program? Using Maslow’s framework, start by creating a matrix mapping the advisor’s levels against your current compensation system. This will give you some ideas on how to best meet each advisor’s needs. Here is Savant Capital Management’s match to Maslow’s hierarchy: 1. L1-L2: Salary, team and
individual bonuses 2. L1-L2: Benefits such as 401(k) and matching; insurance; paid time off; telecommuting; flex hours 3. L1-L4: Equity in the firm and annual dividends 4. L3-L5: Job matching, mentoring, coaching, regular evaluations. 5. L3-L5: Increases in scope of job responsibility and authority 6. L4-L5: Recognition and reward for innovation and being a change agent 7. L3-L5: Community involvement support and recognition 8. L3-L5: Industry involvement support and recognition 9. L3-L5: Professional training inside and outside the firm 10. L3-L5: Marketing growth support – “I care about your future” 11. L3-L6: Professional reputation growth support 12. L3-L6: Supporting professional education outside the firm. Notice a substantial part of Savant’s compensation plan provides emotional motivation in levels L3 to L6, areas not typically considered by HR departments. Your winning system must consider the emotional needs of advisors across this wider spectrum, and formalize compensation that encompasses every level described by Maslow. In Maslow’s own terminology, get big in your hierarchy or go home. Before you change anything about your strategy, however, take a step back and consider what you want to accomplish in the areas of compensation and motivation.
Higher Levels of Motivation
You probably want to pay at or above the industry average salary or bonus, but can you commit to being responsive to your advisors’ needs to reach higher levels of motivation?
Expanding your system to include cutting-edge motivational rewards will help ensure your firm isn’t left behind.
If your answer is “No,” then you might want to carefully consider your overarching business goals. Just don’t be surprised if good people leave your firm because you don’t change. If the answer is, “I’m not sure” or “Yes,” that’s a sign you are ready to evaluate and improve your compensation program. You might think a diversified compensation system that meets every need of every advisor is incredibly complex and highly expensive. Developing and implementing formalized incentives may increase your expenses somewhat, but it can have a significant positive impact on your company’s top and bottom lines. From an implementation standpoint, it’s relatively easy to install if you’re already doing some or much of what I have explained but just haven’t made it part of a formal program. If that’s the case, I recommend you formalize what you already do, and make sure each advisor knows all about it. If you’re still developing your organization, consider adding these additional motivations formally to your compensation program as you grow. By the time we had 15 employees and four advisors, we were able to use nine of the 12 categories mentioned earlier to motivate them. Now, with about 10 times as many people, we use all 12 motivational categories. You should also develop and add to yours as time goes on. The world’s currency systems are expanding conceptually and technically – think cryptocurrencies. Whether or not you agree with their purpose, as an advisor, you shouldn’t ignore them or the trends they represent. In the same way, you shouldn’t ignore trends in advisor compensation. Expanding your compensation system to include cutting-edge motivational rewards for advisors will help assure your organization is not left behind. Doing so will propel you into the 21st century as technology, society and client expectations are changing – and the motivational expectations of your advisors are also changing. Get big or go home.