The compensation structure not only needs to reward individual performance but also foster collaboration, align with the firm’s goals, and adapt to various market conditions. Below are the key insights and strategies for effectively compensating an ETF sales team, focusing on balancing individual contributions with team-based performance metrics.

Balancing Individual and Team-Based Compensation

In the ETF sales environment, compensation models are increasingly shifting from purely transaction-based to more team-oriented structures. Individual sales achievements, while still important, are now often intertwined with the performance of the overall team. This shift encourages collaboration and discourages internal competition, fostering a more collective approach to achieving sales targets.

For example, large firms like BlackRock base compensation on both individual and team performance. Salespeople are evaluated not only on the assets they personally bring in but also on how well the entire team performs against its targets. This model is especially important for promoting collaboration, particularly in larger firms where sales efforts are spread across multiple regions and products.

Compensation Tied to Net New Assets (NNA)

One common metric for compensating sales teams is linking bonuses to Net New Assets (NNA) generated by the salespeople. This model works well in smaller firms where it’s easier to track the sales team’s direct contribution to specific asset flows. Salespeople in these firms often have closer relationships with clients and are more directly involved in larger trades, making it easier to reward individual efforts.

In smaller firms, the compensation structure often includes a base salary with a target bonus that is tied to NNA. This model incentivizes aggressive salespeople who are focused on bringing in new business. Compensation can be discretionary, depending on the product’s margin or market fluctuations, allowing for flexibility in rewarding effort while maintaining alignment with the firm’s profitability.

Challenges in Larger Firms: Visibility and Complexity

In larger firms, it becomes harder to attribute specific flows to individual sales efforts due to the complexity and size of the business. As such, compensation becomes more nuanced. While NNA may still be a part of the compensation package, it is often supplemented with qualitative and team-based metrics.

For example, firms like Invesco, SSGA and BlackRock have merged their ETF and active sales teams, making it difficult to track flows by individual salespeople. As a result, these firms have adopted compensation models that reward overall team performance, contribution to strategic goals, and collaboration across different departments. This type of compensation plan might include a combination of quantitative metrics (like sales volumes) and softer metrics, such as client relationship management, team collaboration, and adherence to the firm’s broader sales strategy.

Incorporating Discretionary Elements

Discretionary bonuses play a significant role in compensating ETF sales teams, particularly in markets where asset flows are difficult to track. For instance, in larger firms or when dealing with opaque markets, firms may rely on discretionary bonuses to reward salespeople for contributing to broader firm objectives, even when specific flows are not attributable.

Discretionary bonuses allow firms to recognize salespeople who have made significant efforts in client management, product promotion, and team support, even if their efforts don’t immediately translate into large flows. This approach ensures that those who play a vital role in building long-term client relationships or positioning the firm for future growth are still fairly compensated, even in challenging market conditions.