At our own firm, where we focus on succession planning for privately owned businesses, we’ve been actively recruiting for both a tax expert and a valuation analyst for over six months and twice now the candidates have elected to stay where they are based on a substantial pay increase – in one case $25,000 with a stay bonus of $25,000.
It makes it far more difficult to budget and plan when labour costs are increasing. Strategies such as pay increases and stay bonuses have a real cost to profitability and in the current economic climate can’t necessarily be passed on to clients as a fee increase. Firms are finding they need to be far more creative with how they reward their advisers.
Examples I’ve seen within the financial advice businesses I work with include:
- Introducing a “me day” – one paid day off per month
- Adding a flexible work-from-home policy (independent of and post-lockdown)
- Short-term incentive bonuses like restaurant and travel vouchers
- Generous pay increases
- Paying for tax advice
- Shorter work weeks
- Employee share ownership plans, a mechanism to allow employees to own a share of the firm they work for
A range of benefits, such as bonuses, working from home and extras, are popular. However, in my experience, a formal alternative to a cash-based salary increase is key to attracting the right candidates or retaining essential employees long-term. This can be done through offering employees the opportunity to own equity in the business through an employee share ownership plan.
What is an employee share ownership plan?
An employee share ownership plan – or ESOP – is a legal arrangement set up by businesses to allow their employees to own equity in the business. Businesses offer them to encourage their employees to think and act like owners, serving to align the employee’s personal financial goals with that of the business. There are different types of plans to consider depending on the size and structure of the business and what the owner hopes to achieve from offering one.
Benefits of ESOPs:
- The adviser can benefit from both capital growth and income by holding equity in the firm they work for. ESOPs also come with generous tax concessions.
- The licensee can provide a different type of remuneration (non-cash) to attract, retain and motivate their advisers.
- The firm’s owner or founder can use them as an effective employee buy-out instrument when they are ready to exit the business. And if retiring, ESOPs can give them the ability to extract cash by selling shares to employees.
It’s important to explore what your employees actually want. For many, income is not the predominant driving factor. They are often looking for professional development and an enjoyable environment to work in.
In addition, many employees are reassessing their work/life balance as a result of lockdowns, and this means firms must re-examine the old-fashioned view that everyone needs to be in the office nine-to-five, Monday to Friday. I know many practice owners who still believe this is the only way to work. But it doesn’t need to be this way. Flexibility of work hours and location have been very important to accommodate the changing life of lockdowns and homeschooling. People are now used to those types of arrangements and many are looking for a workplace that can accommodate flexibility.
Management succession is also important when salary increases are not necessarily the solution. Often, career progression or at least a pathway to better learning, advancement and promotion is more important to the younger generation.
Financial advisers are in a “people business” – clients trust their adviser and that’s why they stay, not because of the firm’s brand. This means that unless you are a sole trader, your people are your greatest asset and they need to be managed and rewarded accordingly. There are many ways to do this successfully, and I recommend advice firms think outside the box when it comes to attracting, retaining and motivating staff in what is currently a very tight labour market with a high workload.
Craig West, chief executive and founder, Succession Plus
There is no labour shortage in professional financial advice. Government and regulators are destroying demand and affordability of professional financial advice, faster than they are culling the ranks of advisers.