Here’s a real-life, and not uncommon tale of a firm that goes to market to hire a new Client Services Officer for their team, only to discover that they can’t get anyone for the $70,000 plus super ($78,050) they had budgeted.
It turns out the market is paying more like $80,000 to $85,000 plus super for the role they’re filling. They reworked their numbers at $94,775 ($85,000 plus super), but they soon discovered their actual problem was much greater than the $16,725 gap.
Not only will they need to pay more than what they’d planned for the new team member, they’ve realised the existing CSOs on their team are paid under the market. They have a problem on their hands.
With IR laws now, employees are entitled to discuss their compensation with one another. If long-term loyal team members discover a new team member is being paid more than them from day one, this won’t bode well for their morale and productivity.
This business thought they had been pretty good at managing their people and culture. They conducted staff culture surveys each year and acted on the feedback. They conducted annual staff reviews and generally lifted salaries by CPI each year. They did an annual team offsite where they invited feedback and did team bonding exercises.
However, they had, for some time, been concerned they had team members on different salaries with the same role title, but no clear way of delineating what justified one being paid more than another – or a way to motivate their team to build their skills and increase their pay.
Having the same team members on different salaries is not uncommon. It is perfectly normal for a team member with the same job title to be paid more than another, but it’s best practice to define the reasons why – not purely on seniority, tenure or longevity of career, but by task type and performance measures. In a nutshell, you want to have a role progression table that defines the level of tasks done by that role, and range of salary based on proficiency on different tasks (for example, in-training through to expert).
This issue had been a niggle they didn’t know how to solve for some time, but the realisation their whole team was paid under market, and they didn’t know how to resolve it without taking a further hit to their already-skinny bottom line. It was enough to motivate them to get outside help, and that’s where we came in.
The firm was already concerned they were only achieving earnings before interest and taxes (EBIT) of 28 per cent against their target of 35 per cent, and whilst they had no shortage of new client opportunities, their team was all under the pump and working to their full capacity. Turnaround times were blowing out, tasks were backing up, which was what promptedthe decision to employ another CSO to support the workload.
While they were at it, they decided to also check what the market was currently paying to hire a paraplanner. They discovered in their area, a paraplanner doing the type of tasks they required was $100,000 plus super ($111,500). Their three paraplanners were paid between $75,000 and $87,000 plus super.
Quantifying the problem
Their current team were paid as follows:
If they were to lift all their salaries to $94,775 for CSO’s and $111,500 for paraplanners, they had an annual cost uplift of $133,800 on their hands – in addition to the $94,775 for their new CSO. They panicked that their budgeted cost of $78,050 had now become $228,575!
What would you do in this situation?
a) Get paralysed by the quantum of the problem and do nothing, hoping that your team wouldn’t find out what you had?
b) Stick to your guns and find a new CSO that will take $78,050 and end up putting more pressure on your existing overworked team, to train up an inexperienced CSO (and still hope your team don’t find out they’re underpaid)?
c) Decide to hire an offshore service for $36,000, plus GST, and split the remaining $42,000 between your current staff to bring their wages closer to market?
d) Get some professional help to solve this problem and the greater underlying one of waning EBIT?
It’s important to acknowledge that salary is only one part of the Employee Value Proposition. This firm has a great culture and provides extra benefits such as free leave between Christmas and New Year, monthly lunch, free onsite parking, and flexible work from home opportunities. They took the opportunity to take another look at their overall EVP and articulate it better, but the bottom line is they still wanted to pay their team well compared to market so they had a lower risk of them being headhunted or feeling undervalued.
How did they solve it?
The firm hired the new CSO at $94,775; customised their role progression worksheets, so they had clear and measurable delineation of tasks and proficiency; and did staff reviews with all team members and arrived at mutual agreement of their current competency levels.
They discovered their wages uplift to current staff was ‘only’ $78,050 rather than their projected $133,900, and lifted their CSO and paraplanners wages to their appropriate levels in the next pay run.
The firm instigated a training plan for each team member to lift their skills to expert level in each role. They also discovered one of their paraplanners aspired to be an associate adviser, so they adjusted their plan to suit.
They now have a clear career development pathway for all staff, where they can see the direct result of lifting their skills in different areas. Two staff members chose to stay at their current level, while most put in the effort to lift their skills and embrace new challenges.
They also brought on an outsourced, offshore team member for the cost of roughly $36,000 (plus GST), who took on the lower-value tasks the onshore team passed on as they progressed to higher-value tasks.
The leaders of the firm shared the situation with the whole team, and got buy-in from advisers (and the team) that they needed to reshape their workflow and their pricing model, so as to have the right people doing the right tasks, and uplift their client fees to rebuild sustainability in the business.
The executive leadership also commenced a bonus system to which all staff were entitled, where they all had the opportunity to receive additional remuneration that took them well above market averages. They shared in a results-based bonus pool in exchange for participating fully in their change management program and going above and beyond in their role.
We redesigned their pricing model and they commenced implementing it across the firm. There were some clients on a very low fee who no longer needed an ongoing service, so were switched to transactional-advice only, and most clients required a fee uplift, some by over 40 per cent.
The firm updated their workflow processes to make the best use of each role, which not only reduced bottlenecks in the back office, but freed up the advisers’ time and lifted their capacity for seeing clients.
The cost of the strategy wasn’t insignificant: consulting fees ($71,000), the new CSO ($94,775), new offshore team member ($36,000), and the uplift in wages ($78,050) led to a total increase of costs of $279,825.
However, the additional revenue they received in the first year – as a result of fixing the fees charged to existing clients and bringing on 50 new clients at the right fee – was approximately $585,000 (an 18 per cent increase on the previous year’s turnover).
They lifted their EBIT from $910,000, (28 per cent) to $1,215,175 (32 per cent) in the first year.
In addition to their extra profit, their team are galvanised and motivated in a way they haven’t experienced before.
They turned what could have been a $133,800 problem into a $305,175 benefit for the business owners. We can’t even quantify the true costs of what might have happened had they continued to pay their team below-market wages and pushed through with an outdated service and pricing model.
Sue Viskovic is head of consulting at Elixir, a specialist consulting division of Vital Business Partners with a team of experienced coaches located around Australia.
