Compensation Plan Design
Challenge
A leading regional brokerage firm came to McLagan seeking counsel regarding its Financial Advisor compensation plan. The existing plan at the time was difficult to understand, did not have a clear link between desired behaviors and incentives, and was not well aligned with market payouts.
The symptoms of this problem varied:
- Compensation was misaligned with performance. The firm paid well above market for lower production and well below market for higher production.
- Deferred awards were nebulous without a clear and set link to performance.
- Commission grid rates were unnecessarily difficult to calculate and did not necessarily promote activity that was best for the client.
Solution
McLagan interviewed key members of top management, HR, technology, and the field to understand the firm’s business objectives, constraints, and the perception of the existing payout plan.
McLagan proposed a more straightforward product-neutral commission grid that eliminated any product bias and significantly increased growth incentives. The new plan also included a two-pronged deferred compensation program that provided a clear link between performance and pay, and that further promoted growth.
McLagan tested the new plan against the production of each individual Financial Advisor to ensure all consequences were intended, identified all implementation risks, and designed transition arrangements for key FAs.
Results
The firm implemented the plan which resulted in more transparent commission and deferred bonus schedules that increased FA motivation.
The new plan payout rates increased pay for strong performers by more than 10%, while remaining cost-neutral in total, resulting in minimal unintended attrition.
