Banks' investment sales operations have evolved rapidly during the past several years, and executives are now searching for compensation structures that help achieve their strategic objectives.
The question now is not how much to pay, but how to structure an effective plan?
Compensation plans for sales professionals need to accomplish several important objectives, not all of which are necessarily complementary. Plans should:
*Attract quality people to the program and motivate them to produce at higher levels.
*Retain top sales people, who are often hard to come by and may try to take accounts with them if they leave.
*Compete with Wall Street firms, regional brokerage firms, financial planners, and insurance companies.
*Avoid significant problems within the overall compensation structure of the organization or jeopardize profitability by being excessive.
*Balance the sales professional's individual efforts with the support provided by the bank.
The most common approach to compensation is paying a broker a growing percentage of commissions as production increases.
Several recent industry surveys found that upwards of 70% of all investment sales programs provide full-time salespeople with a relatively small base salary. As production increases, the percentage of commissions typically is boosted in steps, usually ranging from around 20% to as much as 45% or 50%.
A slight variation combines this approach with a quarterly bonus of 1% to perhaps 4% of the broker's total quarterly commissions, with the percentage determined by "production bands."
Institutions can benefit from this approach by manipulating the "bands," therefore lowering total compensation expenses while still providing motivation to the sales force.
Have financial institutions succeeded in building compensation plans that meet their strategic objectives? As an industry, our results are mixed.
One indication of success is turnover rate. While exact figures are not available, the rate of broker turnover at financial institutions last year was estimated at 20% - comparable to the securities industry in general, but hardly indicative of employees content with their employers, and vice versa.
In response to this relatively high turnover rate, some forward-thinking banks have begun looking at deferred compensation, in the form of bank stock or stock options, as a means of long-term retention.
Another indicator of less-than-satisfactory results is that many banks appear to change compensation plans with every review of their budgets, often underestimating the psychological impact that even small changes can have on their sales forces.
On the plus side, more quality people are leaving Wall Street investment firms to work at banks and other financial institution. And most industry experts agree the entire sales force is becoming more experienced and professional.
Mr. Werlin is president of Human Capital Resources, a Clearwater, Fla., brokerage recruiting firm.
