According to the research report, “Beyond the Numbers: Sales Compensation 2007,” from kasina, a consultant to the asset management industry, it is not the size of the firm or the growth of assets under management that matter when it comes to sales compensation.
kasina examined six roles, looking at both base and variable compensation, within asset management firms and determined their total annual compensation:
- National Sales Managers (with earnings averaging about $700,000 per year)
- External Sales Managers ($579,000)
- Internal Sales Managers ($235,000)
- External Wholesalers ($372,000)
- Hybrid Wholesalers ($124,000)
- Internal Wholesalers ($78,000)
“Compensation is one the most emotionally charged issues any firm confronts,” said Mike McLaughlin, manager at kasina. “As a result, there are a lot of misperceptions in the industry about the right way to structure sales force pay. Our report dispels many of the myths that are out there and provides concrete recommendations for improving the process.”
Making it Better
To improve the process, kasina recommends taking a long-term focus. “With firms focused on 2008, now is the time to re-evaluate and adjust sales compensation plans for coming year. What didn’t work in the current year will be fixed; what did work will be tweaked to become even more effective,” notes the firm. Among the actions the report recommends that asset managers consider are:
- Identify where the sales team is driving asset accumulation. With as much as 80% of flows influenced by distributors’ home offices, it is critical that a firm better understand where the sales team is adding value and AUM.
- Use compensation to reward results for experienced sales personnel, and to encourage desired behaviors for more junior people.
- Select the right strategy for implementing deferred compensation elements. Currently only about 50% of plans have a plan in place, but the notion of adding such plans gaining traction, the firm said.
The report also examines what leading firms are focused on to refine and improve existing compensation models. kasina says some of the strategic questions that will influence the effectiveness of next year’s plan include:
- How should compensation dollars be allocated across the sales team?
- Despite its oft-stated importance, how effectively is compensation actually aligned across the sales organization?
- How, if at all, is compensation being leveraged effectively as a talent retention tool?
One of the myths kasina says the report debunks is that annual turnover is a major issue for most firms. In fact, kasina found that sales turnover is currently about 10% annually, less than half the rate of the financial services industry as a whole. This is partly due to the fact that for many roles within the sales organization, 80% or more of firms already compensate personnel competitively.
“Most compensation programs have been created with two primary goals in mind: paying people adequately and retaining talent,” said McLaughlin. “However, the fact is that these are not issues for many firms today. Firms pay competitively and salespeople aren’t leaving. Going forward, the challenge will be to move beyond the year-in, year-out management of compensation and to turn it into a strategic tool that will serve the long-term objectives of the firm regardless of business fluctuations.”
The report contains data from 25 asset management firms that included: multiple firms with over $100 billion in assets and multiple firms with under $10 billion in assets; firms with large sales teams numbering in the hundreds and firms with small sales teams numbering fewer than 20; and firms seeing significant new sales and firms struggling to capture new assets.
The “Beyond the Numbers: Sales Compensation 2007″ report can be ordered from kasina here.