Compensation, Talent and Culture
Recently, on three different days, I was in three different buildings riding the elevator. On the video screen in the elevator was the following: "Happy employees are 20% more productive than unhappy employees". Three different days, the same message when I stepped in. It prompted me to think. What makes an employee happy? I’ve worked in the alternative asset world for a long time so the first politically incorrect response that came to mind was “who cares?” Not the right response, because I do agree with the statement. I think some CEOs would say, “I need my employees to be happy enough not to leave. Which means paying them enough to stay and tolerate whatever pain they’re bearing.” I then thought what makes the CEO or founder of a fund happy? Is it paying less? Clearly, you can't please all the people all the time. And there is a direct correlation between the compensation of employees and the profit margin of the firm.
But is it just about compensation? While in our industry cash is king, there are two other components that are not typically considered when thinking about the overall compensation proposition. Talent and culture are typically second tier topics in most firms.
Let’s talk about talent first. There’s a common assumption that if you’re willing to pay for it you can get the best talent. I would suggest that is not necessarily an accurate assumption. I believe what you’ll get is the best talent who’s primary motivation is compensation. Which leads to a number of observations in our current hiring market:
Now let’s talk about culture. Some believe a culture forms on its own, organically. Indeed this is the case in many firms; the culture is allowed to develop over time. The truth is, either by default or design a culture will exist. Here are some basic facts about culture:
Interestingly, while culture is usually thought of last it influences directly how a firm operates. For example, if the culture of a firm has a general practice of not communicating you can pretty much expect them not to talk to employees about career paths or future opportunities. And, how compensation is derived will be a “black box”. While many firms can survive with this approach, the negative impact is longer term. Employees not seeing a path will often seek another place that can show them one. Compensation black boxes only last as long as employees trust you are paying them fairly. One crack in the box and trust in the leadership of the organization starts to erode.
There is no question when talent, compensation and culture are integrated a more positive outcome will result. An organization that is known for having a great culture, managing and challenging its talent well, and is relatively transparent regarding their compensation will develop a reputation as an employer of choice. The end result: happy employees and you may not have to spend top dollar to acquire top talent.
My daughter’s wedding was last November. As I took in the success of the event I reflected on the 12 months prior we spent in planning and finally execution. The costs associated with the whole thing rippled through my mind. While I was thrilled to give her the wedding of her dreams I was also pleased to have her “off the payroll”. Although many have told me they’re never fully “off the payroll”-- let’s call it long-term severance.
What’s the correlation? Well, when owners & operators look at their firm’s performance and determine if your expense base is straining your ability to succeed; the parallels become clear.
During a RIF, there are four things to think about that can impact your business.
FACING A REDUCTION IN FORCE
While my current focus is the alternative asset management world, the challenges of balancing a firm’s income with a proportionate expense base is universal. It’s been a difficult two years for many funds. It’s caused them to take another look at their drawdowns as investors think twice about leaving assets in the fund. If there’s a combination of drawdowns and redemptions a fund is left with the very difficult dilemma of cutting expenses. The first place and often the obvious place for reducing expenses are staff; which is typically the largest expense category and the easiest target. It’s an extremely difficult decision and well should be. The staff joined because they believed in the Founder or firm or the Fund’s reputation that created an implied assumption of loyalty that has been generated both ways.
The conundrum is if you reduce your workforce can you continue to operate in a way that allows you to run your firm without judgment errors; the best talent; or the checks and balances needed on the operational side to ensure compliance and accuracy. The first group looked at is the lower paid staff. The assumption is they’re expendable and the work they do is not as critical or can be outsourced. The truth is, eliminating a large amount of these positions rarely makes the dent that’s required. There are many that think about this very strategically but for some who may not have the luxury of time or having someone to guide them, here are some thoughts for you to consider.
Those that depart, those that remain, those that will come and your brand; holding these four components equally important will make an extremely difficult event as successful as it can be.
Compensation Talking Points
Haven’t Communicated Your Bonus Numbers Yet? Are You Happy With “Thank you, your bonus is $XXX.” Maybe You Should Try To Leverage This Magic Moment!
You have a captive audience for about five minutes where they have to listen to whatever you say. Why would you squander that opportunity? This window provides you an opportunity in which you can educate, communicate and inspire your employees. Seize those few minutes and make them work for you.
Commonly called talking points, the goal is to communicate a few simple but important messages you want your employees to walk away with as they think about the number you communicated. The leader or leaders of the firm or the senior managers typically deliver these talking points to employees. Here are some tips to consider if you do want to construct talking points:
While I know some of you have already communicated many have not. Hopefully, these tips will help you craft something that puts context to the bonus number besides the employee’s individual performance. By the way, if you’re doing the employee’s performance review in the same meeting you’re delivering their bonus number don’t expect them to remember anything you say about their performance. If you would like assistance with talking points give us a call.
After many years in many companies working with many employees, managers and leaders I've been given opportunities to experience how to and how not to do many things. I will attempt to present them as lessons learned and welcome your comments.