Wednesday’s Headlines: How Advisory Firms Decide Comps

Sometimes it is fun to see how the sausage is made. In an Investment News story today, we get the inside scoop on how advisory firms determine their pay structures, thanks to a conversation with Zach Abraham, HR director and COO of McKinley Carter Wealth Services; Marita Sullivan, CEO and principal of JMG Financial Group; and Greg Friedman, president of Private Ocean.

Abraham said owners get base salaries plus profit sharing, as well as a new incentive program. A long-term incentive plan is in the works. “The reason why we have gone from a base salary is because we thought that was very important, philosophically, that we look at the owners as employees,” he says. “Plus we feel it's important to create stability within the firm. Sometimes, if you understand that base salary is a part of what you are earning, there is some stability there, not only from an employee's perspective, but from a firm's perspective and an owner's perspective as well.”

Sullivan said JMG started as a bunch of CPAs working as silos – but as the firm evolved, it started offering base salaries which is determined as percentage of revenue credit, as well as an incentive bonus which is a percentage of the base. Plus, there's a company bonus payable to all employees as well as owners’ distribution of profits. “We needed to [make that change] in order to have value in the firm,” she says. “That was the difficult part,” to expect employees to give up a promised salary in return for a less sure revenue-based structure, she says. “It was a culture shock, but I think everybody is very pleased that we did it.”

Friedman said his firm still offers a base plus distribution – with no incentives. “Founders generally don’t need to be incentivized,” he says. Salaries determined by averaging across-the-comp studies and setting them at the 75th percentile. But lifestyle is a factor, too. “Generally, when you look at people who are making base salaries in particular at the very highest levels, they are usually working for companies where the reason they are making that kind of money is 60 or 70 hours a week is sort of the expectation,” Friedman says. “And that definitely is not the case here.”

 

Other News:

China is flooded with private equity. [WSJ]

Study shows that female bankers are more risk-prone. [Financial Times]

BofA is assembling an international advisory board. [WSJ]

Goldman Sachs’s real estate fund will exit a $1 billion Seattle office building investment. [Dow Jones]

Goldman will alter its board structure to prevent shareholders from voting on whether to replace chairman Blankfein. [WSJ]

NYSE Euronext’s chief’s comps were raised. [Dow Jones]

Italy’s UniCredit’s Q4 profits fell 65 percent. [WSJ]

Investors are clamoring to bet on entrepreneurs. [Bloomberg]