Building an Employee Value Proposition With Schwab's Benchmarking Data

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Just like you should have a client value proposition, the most successful firms also have an employee value proposition. Hi everyone, I'm business coach Steve Sandusky for Barron's Advisor, and welcome to Actionable Intelligence. My guest today is Lisa Salvi. Lisa is the Managing Director, Business Education and Consulting at Schwab Advisor Services. In today's conversation, Lisa and I dig into the latest Schwab benchmarking report on RIA compensation. We start by zooming out and discussing the importance of developing and delivering on an employee value proposition. Then we get more specific and we talk about attracting talent, compensating talent, remote working options, incentive compensation, offering equity, and how to evaluate your talent for raises and promotions. So let's get started with Lisa Salvi. Schwab just released the 2021 RIA Compensation Report, and we're going to be digging into the data and discuss how advisors can use this information to build a better business. But before we dig into some of the data and get into some of the details, I really want to zoom out a little bit. And just like financial advisors have a client value proposition, I think it's important for advisors to have an employee value proposition. So, I'd love to get some of your thoughts on what an advisor can do to think about their team and how they can create an environment that goes beyond just the compensation piece. Yes, that's a critical piece, but there's a lot more to it in terms of building a team that's happy, that's loyal, that's engaged. What are some of your thoughts on that?

Absolutely. It's such a good question. I love, employee value proposition. Sometimes we call it EVP. That's really, really important for firms to go back and either create one or be more intentional about it in today's incredibly tight labor market. I, you know, we've all watched the news, we've heard all the talk of the great resignation. In our industry, it might be more like a great reshuffle, and that a lot of people are just looking around and trying to say not just like, where do I want to work, but why do I want to work there? What is the purpose and meaning behind this work. I saw a report from LinkedIn that said there's been 25% more people changing jobs than before the pandemic. So there's just people asking themselves questions, and a firm that has a really good EVP can stand out in that job market. And also it helps you make sure that you're putting the right things in place to keep your team and your staff motivated and engaged. We really believe that people are a firm's most important asset and that talent is increasingly the differentiator of the future. Maybe I can just give you an example of a firm that I saw recently that I think had a really good EVP just to bring it to life. And then we'll kind of talk about what some of the things are to put in that EVP. Does that sound good to you?

Sounds great.

So I just saw one the other day. You go to their website and you're greeted by like 24 different little grid videos of their employees each doing something on a loop, like just really rapidly. So someone might have, you know, their kid in the background. A more serious person might be reading a finance book. Another employee might be, you know, showcasing a sports team they really like. It's very human. It looks really fun, right? So as opposed to just saying in your job description, this is a fun place to work, you go to their website and you see that this looks like an engaged, diverse, interesting group of people that have unique needs and they're human. A really good EVP is going to showcase the head and the heart. It's going to tell a story about the firm. You keep digging into this website and you see that they have an internal mission statement. So they have an external mission statement for client acquisition, but they have an internal mission statement and it talks about their desire to help their team members get the most life out of their careers. They then showcase some of their firm values and how those come to life. And really you just start to get this sense for the firm. You can see a video of what it's like to be a client or maybe a job seeker walking into the firm and you're greeted by all these different people. In today's environment where it's still hybrid or a lot of people are working from home, that's a nice way to still get credit for how nice a lot of advisors' offices are. You get this sense of this welcoming collaborative environment. You get a sense that the firm really believes in their people and in supporting them and growing them. You get the sense there's a lot of opportunity. You can see multiple different job descriptions posted to their page that kind of reinforce that there's different levels within the firm and that you can grow your career. And then, you know, one of those pieces is also compensation, just like you said, but it's not the head, it's not the lead, it's the why behind the work. It's the culture behind the work. It's that spirit of serving their clients behind the work that kind of draws you in and makes you think this could be a really interesting place to be.

So what I hear you saying is similar to one of the first rules of being a great writer, which is show, don't tell. So I think you're saying you go to the website and they are showing you what it means to be— this is a fun place to work. They're not just telling you, they're showing you through the grids and the visuals that they have in there.

Yeah, it's really compelling. It makes you feel like maybe I would want to be part of something like this too. And, you know, storytelling, that's a really important piece of what we do, whether it's with each other, with clients. That's the most sticky way to get a message across. And so they have an EVP, but they're pulling it into life in different ways. So your job description might say all those things in words, but you get a feeling for it by seeing some of the images. You don't have to have a super fancy website. You don't have to have video, but you can bring it to life in the way you tell the story throughout those properties. And it's really important to get it right because it's 71% of a firm's expenses is their labor. That's the number one expense for advisory firms. So it's really good to get this right, and it's really critical right now in this labor market to be able to compete and stand out.

So let's talk about some of the specifics of the employee value proposition. You've touched on some of them here, but let's talk about things like flexible work environments. Well, because of COVID we've got some firms who have said, Well, gosh, because of this, we realized that we can actually function pretty well remotely. So we're going to allow our team to work maybe 2 or 3 days from a remote location. What are you seeing at this point in terms of— let's take flexible work environment as one example as part of an employee value proposition. And then maybe if you can share some other aspects that go into the employee value proposition beyond beyond having a fun environment here? What are some of those other items?

I'm glad you started with remote work because that's the number one question job seekers are asking. They want to know the answer to that question. So when we asked advisors what they thought, how they thought they'd be serving their clients when COVID restrictions are lifted, they are telling us they think about 50% of their client interactions are going to remain remote because their clients actually enjoy the opportunity to not drive across town in many cases. Different firms are going to think this through differently. Some will put a premium on in-office experiences. Some will say, you know, one meeting with a client per year should be in person just to kind of continue to build that relationship. But it does free us up to think differently about that question. So some firms are really thinking outside the box. I heard one really compelling example the other day. It's almost like a teacher model. So this firm was taking the approach of, for their client service associates, so the more junior folks in the year, there's really busy time periods and there's periods that aren't as busy. So one of the things they're highlighting in their employee value proposition is that you can work a much more limited schedule over the summer, kind of like a teacher would, for a little bit of reduced pay, but then you're going to be working a lot of hours during tax season and at the end of the year and other times when it's busy. And highlighting things like that can be really compelling and make you stand out. And that would be one of my top things I would tell firms to do in their EVP as they develop it, have one thing that makes you stand out, right? Have one signature program that makes you sound special. And I think most firms have something like this that they're doing. One thing I think is really important to have in your employee value proposition is a career path. And if you have a career path, you can name that career path, right? That can be your thing that makes you stand out. Special and it shows people that you're going to invest in their future. And that's what people want, especially when I'm talking to university students. They want to know if they're going to join a firm that's not a large company, they're going to have opportunity for advancement, and that firm's going to develop them and help them grow and have forward momentum in their career. So absolutely you need to have an answer to that flexible work environment question. I think maybe the days of 5 days in the office are a little bit in the past for the most part. There is going to be a little bit more flexibility. Maybe you just let people work different schedules. Like if you want to attract more women to your firm or parents in your firm, maybe you let them have time off so that they can pick their kids up from school, for example. So there's ways to do this without going completely flexible. Some firms are taking the job location out of the equation completely and just going after top talent. Compensation is something you should touch on in your employee value proposition. And I would say, particularly in our industry, you should highlight that there's a base salary component and a bonus component for most roles, because there's still a little bit of a perception out there that this is a commission-based or a smile-and-dial type of industry. So that can make you stand out in the labor market. You should talk a little bit about those non-traditional benefits as well. You should definitely say that you have traditional benefits, of course, like health and dental insurance. But what we're seeing is those are just table stakes. Like almost all firms have those in place. So you should mention those things. Those should be competitive, but you should have that signature program that makes you stand out. You should talk about your non-traditional benefits, like workplace flexibility. You should talk about your career path. And for some firms that they start that career path with the client-facing roles, It's a really good opportunity to define those for operational roles as well, especially as firms grow. That really does help you showcase that you're going to develop your staff. You should talk about professional development opportunities. We see firms with over $250,000 in AUM spend about $1,700 per professional on training and professional development. So if you're going to support them going to conferences or getting a designation, put that in there. The CFP designation means a lot to a lot of people coming out of financial planning programs. And then the last thing on non-traditional benefits I would say is it's an opportunity to showcase your values, and that can really be important for the next generation of talent. They really prioritize their desire for their future employer's values to align with their own. This could be things like time off to volunteer, Standing up a pro bono program, an employer match for charitable contributions, the firm's focus on diversity, equity, and inclusion. These things are all really important. And if you have them, and I see a lot of firms that have these things, they just don't have them documented in an employee value proposition, shout it from the rooftops and decide what that one signature program is and then start to tell that story all over the place.

Yeah, just a couple of things that I want to tap into based on what you said there. One is, there's been a number of studies out there that would show for an employee what are the most valuable attributes or most important aspects of working for a company. And oftentimes we'll think, oh, well, it's pay. Well, in a lot of these studies, pay typically comes in at maybe third or fourth on the list in terms of what's most important. So if you're in a situation where you've got employees that are complaining about compensation, Usually it doesn't get to that point unless all the other things that you just described there, all the other aspects of the employee value proposition, are not there. If those things aren't there, then that's when they start complaining about, hey, you're not paying me enough to put up with this kind of environment. So I think all the things you described there are so key that when you have all those things in place, then compensation is not the most important thing that people are thinking about. So I think that's one key. A second key that I would mention is I've worked virtually for 17 years now. So I was doing it before it was sort of cool. And I've learned a couple things, or at least one thing in particular, and that is for the first few years of doing it, I was leading a company that was 500 miles away from where I was located. But the reason why it was effective is because for the first few years of working there, I was in the office. And so I understood the culture, I met the people, I built the relationships. And then by the time I decided to go and move elsewhere, I had the team in place, I had the leadership in place where it functioned really well. And so I think one of the key lessons that I learned that I think is really important here during this COVID area and probably this new era of people working remote is that if you're going to hire a new person, and they're going to be remote, that it's— I think it's critical that at the very beginning, the onboarding process, it could be weeks, it could be months, that they spend a significant amount of time in the office. Again, whatever your COVID protocols are, but when you can, get them in the office because they need to establish those relationships. They need to get immersed in the culture. And once they can do that for a few months, then it's much easier for them to go remote because they've built the relationships, they understand how the company works. So I think that's a key lesson that I see some people making that mistake that they hire someone, but they don't get them immersed in the culture early on.

Yeah, that's such a good point, Steve. And I think you just absolutely hit the nail on the head. Every time I talk to a group of firm leaders, and I'm talking really big firms in some instances, their number one concern for the future is how do they preserve this firm culture that has made them as successful as they are today. And spending time together, developing that trust, that's really important. In the virtual world, I did see some really good examples of firms that took that employee onboarding process so much more seriously than I think we have in the past. And they added a lot of rigor and like virtual check-ins between different employees so that they're getting a sense for that culture. I, I've seen some firms do re-onboarding, they called it, for all employees because there was this new mix of people who had started and never been in the office and other ones who had. And really took the time to communicate out key parts of their strategy, their strategic business plan, their origin story of how the firm started and why, client stories about the difference they've made over time in the lives of their clients, communicating their values. One firm I know, every quarter they take another look at their ideal client persona with the whole team so that everyone's really rebuying into exactly who they're trying to serve and any adjustments they need to make to the way they just Wow, they're ideal clients. And I highlighting all those things is a really foundational, I know you and I have talked about these before and we both believe in all of those things, but to do it with intention, to do it in team meetings in person or remotely, that's a really good way to preserve that culture and help everyone feel like they understand again, that why behind the work, why am I here? Why am I doing what I do? So I love that example. And I just think that culture element is so important to this industry and all industries. As we start to deal with the tectonic shift of the work environment not being exactly what it used to be anymore and kind of grappling with what that's going to look like in the future.

Yeah, and I think it's also helpful to bring the entire team together at least quarterly, and particularly for these larger firms that might have offices throughout the country or in different regions of the country, to bring everybody together once a quarter for a couple of days, just to, again, continue to build that culture, to continue to build those relationships, to communicate important things that are really beneficial to communicate in person. So I think there's a lot of people have looked at this remote work as negative, but I think there's so many positives that actually can come out of this as well. And so I encourage folks to look at the positive side, which is your opportunity to recruit people has just expanded all over the country, if not all over the world. So, there's definitely some, some upside to this as well. And I think we need to take advantage of those too. So, let's switch topics here just a little bit and let's talk about staffing levels. And it's been a good time to be a financial advisor for 10, 15 years or so. A lot of firms are growing fast. And what have you found as far as how people should think about staffing levels? Are there certain ratios that you've noticed that advisors use in terms of we should have X number of employees per X amount of revenue, or what are maybe some rules of thumb that we should think about on staffing levels?

Yeah, I'll start with that ratio question. A good back-of-the-napkin calculation that firms can do, and what we see from our compensation study, is generally an advisor adds a new role for every $325,000 in revenue. We also see a ratio of 1 revenue-producing role for every 1.5 non-revenue-producing roles within a firm. So back of the napkin calculation, but that's generally what we see in terms of adding staff. I will tell you, you are exactly right. There has been so much growth in this industry. If our current growth rates continue over the next 5 years, the median firm in our benchmarking study is going to need to add 6 new roles. And that doesn't take into account hiring for attrition. So the median firm today has $439 million in AUM and 8 employees. They're going to need to go to 14 employees and they're going to be almost at $800 million in AUM in a 5-year period. If we see the CAGR of the last 5 years continue for the next 5. So that is a pretty significant amount of hiring that needs to happen just to keep up with the median levels of growth. And there's even more hiring than that when, when attrition is taken into account. So having that EVP, shouting it from the rooftops, having it on your website in a compelling way, putting it in your job descriptions, making sure everyone on your hiring team knows how to highlight the things that make your firm special. Those are really good things to do. I'll also just tell you 8 in 10 firms plan to hire in 2021. And we saw for the first time from our benchmarking study, the number 2 top strategic priority was hiring staff to keep up with growth. That's the highest it's ever come in, in the past 15 years of doing benchmarking. So we know this is a critical question for firms. We fielded the study I'm talking about today between January and March of 2021. And in April, the labor market really just got so much tighter than even what these numbers are telling us. So I, I'm going to put that out there. We're about to start fielding our study for 2022, and I'm going to be really interested to see where these numbers come in, because I think it's going to be even more compelling.

I think you touched on this earlier. I think you said that the compensation expense as a percent of total expenses was like 71%. Was that the number that you threw out? Okay. Has that number been going up? Has it been going down? Has it been staying about the same? And do you anticipate that changing now that inflation has reared its ugly head here again?

It tends to stay in the 71 to 75% range when we look at our benchmarking and the P&L data. It's hard to say if there's open roles longer, that could be a consideration. If you're having a hard time filling roles that you need, you would see that number come down a little bit, but you don't necessarily want it to come down in that scenario. You want to get the right team members in the right seat to support growth. I think because of what we're seeing right now, it's even more important to Have a well-articulated recruitment plan. Don't wait until you needed to hire someone 6 months ago because it is hard to find people out there. So hire ahead of the need and be clear where that need is going. If you get into too much of a crunch or your capacity is getting really strained and you're seeing the effects on your team members, it can be really easy to just go throw one more person at it, but that's not always the answer. Sometimes You need to really sit and think of the workflows the firm's using and who's touching each piece of work, like client onboarding or preparing for a client review meeting, and make sure that you're, you know, having the right level person within the firm do the work. So when we do client journey mapping with firms, we generally see them go, okay, as we look at every single person who touches this part of our client experience, We need to push some of these activities down to more junior staff. Sometimes they want to create a more junior role and make sure that you're freeing up the time of your most expensive talent to do the things that they do best and that they're uniquely suited to do. So don't just think I'm going to put another job description out for the same role. Really be thinking of the model for the future where you need to add the talent. Maybe you need to add a new capability over time and a really specialized skillset. Especially as firms grow. We see that with like marketing roles or a different element of serving their ideal client they want to be able to really bring into their offering. So having a little bit of that roadmap and then always be sourcing, ABS, always be sourcing that talent, right? And start looking for people because it's better to have some of those contacts ready to go than to wait till there's too much capacity constraint within the firm.

Yeah, I think that last point, I want to double-click on that one about always be networking for new team members, because if your company's in a growth mode, you should always be out there talking to people and trying to identify, that's a person who someday I would like to have them working for my company. And by doing that, there may be times when someone, your target person, becomes available, and maybe you don't necessarily have a spot for them right now, but you want to bring them on anyway, because if they're a top talented person, you're going to be able to find a way for them to really make an impact in your organization. So, like you say, there's such a tight market for top talent right now that when those folks become available, you need to bring them on the team if you can, if possible. So, let's talk about compensation structures here a little bit and base pay versus incentive pay and maybe some of the pros and cons of tying compensation to revenue or other metrics. But before we do that, I want to ask you a general question, an observation. Maybe you have some anecdotal information about this, but as you think about the top advisory firms that you work with, do you have any sense for their overall compensation? Do the top firms tend to pay above average, above market pay rates? Do they tend to pay at market? Do they tend to pay below market because they're such desirable firms that everybody wants to work for them and they just want to get their foot in the door, so they're willing to work for less pay? Do you have any thoughts on, on how the best firms, the top firms, where they kind of land in terms of maybe the percentiles of compensation?

So it really depends. Some firms— and I'm going to kind of tie your question with equity ownership— so I see some firms that have a strategy, a compensation strategy of We're going to pay our people extraordinarily well. That's going to help them stick around, but we're not going to share equity. We see some firms who don't put as much of a premium on base pay, but put a lot more of that mix into incentive compensation. So I wouldn't say it's necessarily by firm size. I think equity ownership means a lot in this industry, and we should probably just have a whole discussion about that because that's such a big piece of it.. But you need to have a strategy. Like, are you going to offer a lot of flexibility and competitive compensation, or are you going to want to outpay the market and that's how you're going to keep people there, but you're not going to have that equity ownership component? Other side of the spectrum, some firms want all of their employees to feel like they're an equity owner and they want to have them all participate in the future of the firm. So it might be a very small amount, but they make it available. To everyone to buy in, or in some cases they grant it. So we do try to provide a lot of this data to the firms that participate in the compensation study. So, and the reason why we actually started doing this study back in 2014 is because advisors were having a hard time just setting their compensation, incentive compensation, equity ownership, and benefits packages in a vacuum. And they wanted really specific RA data. The firms that participate can go use a tool. They can see based on their zip code what the top 27 roles within advisory firms, how they're compensated based on years of experience, based on firm size. So it's really a robust way to really see what's happening in the marketplace and really drill down on a role-specific level to what you're talking about. I think for anyone listening today, you and I can make sure we share just what some of the national compensation data looks like. So we'll make to make sure that we get that out there so firms can just start to see a little bit of that benchmark for the 27 roles, and then they're going to have to apply that filter if they know they're in a really expensive labor market. Like, I'm in San Francisco where it's pretty expensive versus, you know, Orlando or somewhere in Florida where labor is not quite as expensive.

So let's drill down on an example position. So let's say that we have a financial advisor in the firm. You got the owner of the firm, firm, and then we've got an advisor in the firm. What are you seeing in terms of how that advisor is compensated? And I know there could be a couple different roles of the advisor. There could be more of a servicing advisor, someone who is not designed to necessarily bring in a lot of business. It's more, hey, we've got plenty of business, I just need someone to service the existing clients, so I'm going to pay you maybe more of a salary with some kind of bonus. There could be another advisor which is designed to be lead advisor, they have to bring in the new business, and they get compensated for that. So what are you seeing in terms of how to compensate a financial advisor, maybe base pay versus incentive pay?

Yeah, good question. So performance-based incentive pay is widely used throughout the industry. We see about 74% of firms use performance-based incentive pay, and for those firms using it, 3 out of 4 roles are eligible to get it. So performance-based incentive pay, I believe in strongly. I think it's a really good strategy, especially when you're tying it to your strategic plan or your strategic objectives. It's very clear, it's transparent, it's communicated, and people understand, you know, what they need to achieve in order to get the incentive pay and how to go about it. So I think that's really powerful. And we actually see that linked to firms get better results in terms of AUM when they're doing that. Tying compensation to revenue generation is not quite as widely used. That's much more role-specific to your point. It might be a business development officer or a lead advisor who has business development as part of their job description. It's used by 1 in 4 firms and it's role-specific. So only 1 in 3 roles within firms using that as a strategy are using it. So it's a good strategy as well. It's just not widely as widely used as performance-based incentive pay. And I can give you, maybe I'll just give you the compensation mix across all roles, because I think that can be just a back of the napkin helpful thing for advisors to hear. So across all roles, so over 1,000 firms participated, and this represents over 10,000 roles in our industry. Base salary represented 79% of total cash compensation. Performance-based incentive pay was 10%. Compensation tied to revenue generation was 7%. And ownership profit distributions were 4%. So that's just generally across all roles, but that gives everyone just a little bit of a sense for that compensation mix.

One of the things I want to accentuate on what you just said there was tying the compensation to the firm's strategic plan, to the firm's strategic goals. And I think that is so important because let's face it, we're human and we're going to do what we get paid to do, generally speaking. And so you've got to make sure that whatever you put in place for your compensation plan, that it is incentivizing the kind of behavior that you want to see. Now, we're not robots here either. So, you know, we have to understand that. But generally speaking, whatever that incentive is, is what people are going to do. So you've got to be very thoughtful on tying those two together, which also presumes that you do have a strategy, which that's sort of the first part is let's have a strategy first, and then let's talk about the human capital that we need to fulfill that and how we compensate that to really give people incentive to deliver that kind of behavior. So I don't know if you have any other comments on that or not.

Yeah, no, I love that. I think the first step is having a strategy. That's such a great point. I would just add, I mean, when you use that incentive-based compensation, that can be a really powerful tool. So it can be a way that you're reinforcing your strategic plan, your goals. We see the 5-year revenue CAGR is 54% greater for firms using performance-based incentive pay. So the firms doing this are seeing real tangible results back. To their bottom line. I would also say that incentive compensation can be something firms look at right now. It can be really interesting when you're bringing on new staff. Sometimes those base salaries, there's an expectation it's gonna be higher because what we're seeing with supply and demand in the labor market. So that question of fairness is coming up for a lot of advisors. And so you can look at maybe the incentive-based or the opportunity for that pay as a way to kind of smooth and right-size some of your compensation packages over time as well. So that's another thing I would look at. The other one I would say is really prevalent right now is just hiring bonuses. So hiring bonuses also, and that's something firms should think about as they are trying to recruit talent, because that's a one-time expense as opposed to an ongoing long-term expense. So that can be another way to kind of be competitive and attract the talent you want, get them in the firm without having it add to your ongoing P&L.

Now, you touched on equity ownership here just a little bit earlier. I know we could have a whole separate conversation about that, but are there any maybe high-level thoughts or considerations that we should be thinking about when it comes to offering equity opportunities? Do the team members pay for that? What kind of vesting What kind of schedules are you seeing? How should we think about that strategically?

I've had so many conversations, especially for some reason over the last 2 years with advisors who, if they have a really good equity ownership program and a documented path to partnership, they're telling me they're getting calls from people saying, you know, I want to learn more about your firm. I'm interested in working for your firm because this really means a lot to people in our industry. Equity compensation is really the currency firms are using to hire, to motivate, to retain talent, as well as to make key internal decisions. It's a great way to cultivate and reward the next generation of firm leaders. For some firms, offering equity ownership opportunities is about retaining talent and ensuring an ownership mindset and getting people to participate in future growth. Even if transitioning equity starts as a talent strategy, strategy can also help provide succession opportunities. And what we're seeing as firms grow is it's not just, you know, if I retire, I have one successor, it's generally a team of generation 2 or 3 or 4 leaders that's going to step into that leadership role. When we look at the mix of equity owners in our compensation report, 51% of staff holding equity were 49 years old or younger. So there is good equity ownership being shared with the younger generations within a firm. And it's something that even university students, when I talk to financial planning students, they will ask this question. And that's not because they want to be given equity on day one. They don't expect that, but they do want to see if I'm going to join a firm, is there a way I can participate in that career path? And does that career path lead to potential ownership opportunities? So they're pretty savvy these days, and you should be prepared to answer that question if it comes up. We are seeing more firms offering equity. So compared to 5 years ago, the percent of staff holding equities increased for larger firms. So firms over $500 million in AUM, that percentage has increased across all firms in the study. 1 out of 3 employees have some sort of equity ownership. One thing I really like, and I know you and I both have brought up the strategic plan a couple of times, but I really like it when I see a path to partnership. And part of that is assigning a rising potential partner to a strategic goal within the firm where they have to own it and it's outside of their day job because it just helps flex some leadership capabilities that maybe they wouldn't get the opportunity to, to use otherwise. And the best firms, and I think this is so compelling, will have a senior partner mentor that potential junior rising partner.. And so you create this cycle of relationship, of understanding values, of support, camaraderie, as you're developing your future partners and your future leaders for the firm. I would also say there's two schools of thought on the question of selling equity or sharing equity. Some firms really didn't like it when we did our research around equity ownership. That term sharing equity didn't resonate because they want people to buy in to the firm and have some skin in the game relative to it. So it's an opportunity to participate in equity ownership, but not just be given equity. Other firms do grant equity. So there's a wide range of options for firms to consider. If you sell ownership, they often do it because they want owners to feel like that cost. They want them to feel what it's like to have that stake in the firm and the expense of it. They don't want them to take it for granted. And if they grant equity, they see it as kind of a part of the compensation mix often, like this is to reward you for all the hard work that you've done. Some firms straddle the line and they do a mix of both. So they do some opportunity to buy with some sort of vesting schedule as well as granting with some sort of vesting schedule. So there's a wide range of options. I think having a strategy here and being clear about why you're using equity as a component of your compensation mix what you're trying to accomplish, and who is able to participate, and really what does it mean to be an equity owner within your firm? Does that mean you're a partner, or does that mean you own 1% and you're an operational team member and you're not sitting in on the leadership meetings? You have to kind of clarify all those things to make this program work as effectively as it can. That being said, when you have it, this helps you compete, this helps you grow your talent, this helps you attract talent at all levels. Senior leaders as well as those university students that are so savvy that I was talking about a little bit earlier.

Yeah, and clearly there are a lot of options here when it comes to compensation, when it comes to the equity ownership. So, you can pretty much structure those however you want based on your unique situation. One of the phrases that you said there that I really liked was you said a documented path to partnership. And I think that what I'm seeing with the current generation, the younger generation I'm going to call them, is they want to have a sense for what is my career path? What do I have to do to get the promotion? And which is the next area that I want to touch on here. How should firms be thinking about how they evaluate their team members, how they determine who gets a raise, who gets a promotion? Again, now that inflation is back, Are we back with cost of living raises that people automatically get? So what are your thoughts on how we think about those issues?

So I get this question a lot. How often should I reevaluate my compensation strategy? I would say anytime it's not meeting your needs is a good time to think about all these levers that you have that you can pull, compensation being one of them. Minimally, I would say look at it every year. Try not to do it in a vacuum. So try to get some sort of data that helps you understand what's happening in the labor markets. I mentioned earlier that we have some we can share from a national level. So just get a benchmark of that. Generally, firms will do some sort of base salary increase on an annual basis, sometimes based on cost of living, but sometimes on other factors too. So you need to bring in data and information into your decision-making decision set. That's very important to not just be making it up as you go. Promotions are definitely happening in the industry. It varies by firm. Performance reviews, we like to see those be more formalized and to happen on an ongoing basis. I think having a schedule, you said it earlier, it's important to have a strategy. So how do you mix in performance reviews? Do you do a mid-year review and an end-of-year review? Are you reviewing it against their goals? Against their opportunity for incentive-based compensation? Are you giving direct constructive feedback? People do want that. They want to hear, where can I improve, especially the younger generations. I think sometimes that's surprising to the older generations. They want feedback on this ongoing regular basis. They're used to that in the way they've kind of grown up in the digital era. So you have to be prepared to give a lot of that. The one other thing I would just want to put a little bit of a plug for is formal mentorship programs. That's one of the best things you can do. Firms that have formal mentorship programs see 25% higher employee retention. So I think there's a lot of benefits between getting different people talking to each other, whether it's someone from a younger generation with a more senior person, whether it's a, a female and a male, or as you're developing a culture that's more inclusive and you're trying to get more generational, gender, and racial diversity within the firm that can create more of a shared understanding. So it benefits the mentor and the mentee. Some firms even rotate that so that it's not like, you know, Steve, you have to be my mentor now for the next 10 years. I might get to work with you as my mentor for like a year or 2 years, and then it rotates so that you're kind of creating those relationships throughout the organization. That's just one I think can be really powerful. We saw firms over $1 billion in AUM last year, 54% of them did internal promotions last year. So it happens on a regular basis. It's good to have that path to partnership, and it's good to show some of those proof points of people that are making it to the next level because it's motivating for your team.

Well, as we get ready to wrap up here, I just want to reiterate your national compensation results and then also give you an opportunity to share any final comment before we close here. But in your report, I'm going to have it on my website, which is stevesandusky.com, and you can look at the show notes here with Lisa, and we'll have a link to it. I think you may be able to get it on the Schwab website. Follow Schwab on social media as well, and they'll be sending this out via social media too. So, so in this report, in the appendix, you list a variety of common positions with an advisory firm, and you have great detail in there in terms of the compensation ranges and the number of years of experience and so on and so forth. So I know I personally use that a lot. It's great data. I don't know if you have anything else that you want to add to that or any final comments here as we wrap up, Lisa.

Yeah, I hope people take a look at it and find it valuable. If you custody with Schwab or TD, we're opening our benchmark our benchmarking and our benchmarking compensation study, January 26th to March 16th. So that's an opportunity to participate and get that firm-specific data all the way drilling down to your zip code and the years of experience, all that stuff through an online tool. So if you want to participate in that, please do so. The last thought I would just maybe share on this important topic, it's the topic of the day. Everybody is talking about compensation and talent strategy. I would just ask firms, take another look at your website. That website is not just your client acquisition tool, it's your talent acquisition tool, and you want to make sure that you are telling that story. Whenever I talk to a firm, I can find something special about that firm. Make sure you're telling that story. The top 2 pages people are going to go to is the About Us page. So what's your firm story? What do you stand for? And the bios. Really try to make yourself look human, connect with your audience, and try to showcase that employee value proposition on your website too because that's going to set you apart.

I love that. Your website is your talent acquisition tool as well, so I think that's a great one. Well, Lisa, as always, this has been awesome. I appreciate you sharing all this information with us today and all the great work that Schwab does with these benchmark reports. We'll look forward to all the continued great work that you and the rest of the team are doing.

Steve, thanks so much for having me again. I love our conversations and just congratulations on all the success of your podcast. It's been really wonderful to be a part of it.

Thank you. My key takeaway from my conversation with Lisa is that cash compensation is just one of many factors that you have to get right if you want to attract and retain the best talent in the industry. This idea of creating an employee value proposition and showing how you deliver it by having your website double as a client and a talent attraction tool is brilliant. All right. That's all for today. Make sure you like and share this podcast through your favorite social platforms. And for more great podcasts, visit us at barons.com/podcast. Take care and be safe.

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