Incentive compensation is often guided by the old axiom: “You get what you pay for.” The corollary to this axiom is “know what you want and only pay for it.” Advisor compensation is no exception. To better determine the relative performance, efficiency and behavior of Advisor incentive compensation structures, Relationship Velocity has regularly gathered confidential information on current Advisor compensation programs from many of the leading players in the “Bank Advisor” marketplace. The findings revealed that most compensation studies today focus on the total cost of compensation as a percentage of revenue. This is completely misleading information and offers NO comparative value whatsoever. Let us explain, in simple terms why.
Most “Bank Advisor” compensation plans are tiered to various levels of (typically) monthly productivity. Mathematically, if one firm has a higher level of productivity, their cost of sales will be higher than (as a percentage of gross revenue) another like sized firm with below average productivity. To correct the analysis, the variable of productivity must be standardized and set against each firm’s compensation model. Relationship Velocity uses three (3) sets of standardized data which are actual data sets from live sales teams in groups of 100 Advisors. Each set of 100 Advisors has a standard level (high, medium and low) average per person, level of productivity. This way the compensation “tiering” will illustrate differences not only in totals but within the standardized sets of Advisors. Each of the three (3) groups of 100 Advisors, is modeled against various compensation models with different tiering. A line graph illustrates how EACH ADVISOR within the “High P/P Average Group” compares over the years’ worth of monthly production and compensation. Then the Medium and Low Average Groups are run in like fashion for comparison, each illustrating a month-by-month line graph of productivity with each data point illustrating the total amount of compensation by month. This approach enables institutions to understand the portion of revenue that is devoted to compensation as tier levels are adjusted across different sales team producing at a low, medium and high averages of productivity. This flexibility allow refinement to the tiering that drives behavior, and ultimately reducing unwanted incentive compensation expense. For each percentage point saved in unwarranted incentive compensation, is a percentage point gained in the bottom line PTP.
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