Nirvana Asset Management S2 WORKBOOK

Decisions and Notes for Modules 1 – 5

BSMARTer Business Simulation Management and Relationship Training

Organizational Structure and Compensation

MODULE 1

Service Team Structure

2

Draw a picture of your service team structure.

Client

Tax & Financial Planning

Service Advisor

Investment Professional

Support Advisors / CSA & Operations(Shared Services)

Lead Advisor

Service Team Structure

3

• There will be five (5) separate client service teams. Each team is made up of a

• Lead Advisor: Is involved in all scheduled client meetings, reviewing clients’ Investment Policy Statements, presenting alternatives and responsible for the overall relationship. Also responsible for generating new business through referrals and prospecting.

• Support Advisor: Available to meet with client during unscheduled interactions, responsible for coordinating the team of tax & planning specialists as well as the investment professionals if necessary. They help coordinate documentations and all information required for or by the client to pass along to the Support and or Operations.

• Tax & Planning Professionals: A member of the team, but only brought in during certain situations where necessary depending on the client situation and needs. They will be responsible for presenting any financial plans or changes to the tax strategy for the clients.

• Investment Professional: A member of the team, but somewhat separate and participates only in situations where necessary for the client.

• The Client Support Advisors and Operations will be a shared service organization supporting each of the five teams to increase utilization and efficiencies. Primarily responsible processing new accounts, wire transfers and day-to-day activities of the firm.

• Teams will be assigned based on a client segmentation strategy:

• More senior lead and service advisors will be assigned to the fewest clients with the highest net worth and revenue generation. This will ensure we have our best resources allocated to the best clients and opportunities to reduce wasted resources.

• NOTE: The Briefing Book suggested we lost several clients in 2013, we believe this new structure will provide greater intimacy and knowledge of each clients individual needs, and thus lead to higher customer retention.

• The other segment of the three teams will specialize in a higher number of smaller relationships and potentially higher number of service advisors.

• To create better cross-training across teams, the firm will undertake a number of shared training sessions and encourage teams to exchange best practices. Client relationships are best served by stable teams. However, integrity of process and operations is best achieved through cross-training and cross-team services. We will seek to balance the two factors through training and mentoring across the teams.

Provide an explanation of your service team structure.

Service Team Structure – Career Path

3

Career Path Options:1. In most cases, depending on level of experience, a new associate starting with the firm will be

assigned to either the CSA or Operations department.2. From this point, depending on whether they want to go more:

1. Operations focused and work in our cross-training program designed to take the associate through the operations, tax & planning or investment departments.

2. If the associate decides to be more client focused, they might have the opportunity to move up to a Service Advisor.

3. After enough tenure, a Service Advisor might be assigned a larger book of smaller AUM clients and become a Lead Advisor for those clients.

4. As the associate gains more skill and expertise and demonstrates they can bring on larger client relationships, they will have the opportunity to manage larger books of business.

Provide an explanation of your service team structure.

Compensation Benchmarking

4

Determine base compensation for three employees in your briefing book. Complete the task using the next two pages.

Position Salary Bonus Total

Nirvana Lowest-Paid Employee

Lead: $97,826Service: $80,000Support: $47,826

Lead: $14,674Service: $8,000Support: $7,174

Lead: $112,500Service: $88,000Support: $55,000

Nirvana Highest-Paid Employee

Lead: $130,435Service: $97,826Support: $68,182

Lead: $19,565Service: $14,674Support: $6,818

Lead: $150,000Service: $112,500Support: $75,000

Nirvana -rangeLead: $114,130Service: $88,913Support: $58,000

Lead: $17,120Service: $11,337Support: $6,996

Lead: $131,250Service: $100,250Support: $65,000

Benchmarks

Benchmark Median

Lead: $110,000Service: $65,000Support: $53,000

Lead: $18,000Service: $9,720Support: $5,000

Lead: $134,000Service: $81,332Support: $62,542

Benchmark Third Quartile

Lead: $133,143Service: $84,000Support: $61,719

Lead: $36,850Service: $15,000Support: $7,000

Lead: $197,500Service: $100,813Support: $72,606

Compensation Benchmarking

5

Our compensation philosophy is one which seeks to align compensation with the goals and objectives of the firm allowing employees to participate in the firm’s overall success. We evaluate our employee performance through standards based on the goals of our organization and offer incentives for participation in bonus pool accompanying a very competitive base salary – meaning in the third quartile for the industry benchmarks. After reviewing of the compensation structure for our Lead, Service and Support Advisors, we do recognize there is some overlap between the Lead and Service Advisor roles as well as between the Service and Support advisor roles. However, upon further review of the benchmarking study, the ranges for these roles are in-line with industry averages, with the exception of our Service Advisors where our firm pays higher than market compensation (see previous slide). The reason for the discrepancy in Service Advisor compensation is because:

• We expect more from them, serving in many cases almost like a Lead Advisor in client meetings and interactions.

• Many have more experience and are positioned for promotions in the very near future..Going forward, we will look to compensate more on an enhanced bonus compensation package.

What changes, if any, will you make to compensation?

Staff Selection and Performance Management

MODULE 2

Performance Evaluation

7

Job Factor Explanation

1. Core CompetenciesJob Knowledge, Team Work, Communication and Self Management

2. Performance vs. GoalAbility to manage time, activity and focus in order to meet and exceed agreed upon goals.

3. Client ServiceDeliver a client experience that aligns with the firms core vision and values.

4. RetentionAbility to maintain and strengthen existing client relationships in order to protect the firms reputation and revenue

5. Asset AccumulationDevelop relationships with clients, prospects and COI’s while generating new firm asset/revenue growth.

Describe how the forms will be used.

Performance reviews at Nirvana will be utilized to assess individual performance vs. stated goals, align individual and organizational objectives, help our employees develop professionally and to define and track progress towards future goals. (See Nirvana’s Mgmt Performance Checklist)

Annual performance management at Nirvana will be managed as follows:1. Regular one-on-one meetings – Informal discussion driven by employee. Provide feedback and

coaching as needed.2. Quarterly Review – Measure progress towards goals. Highlight behaviors and activities that

either contribute towards goal achievement or need development and/or coaching.1. Check-in with employees to see how they are measuring up to their Nirvana’s Individual

Development Plan (see attachment – Nirvana’s Individual Development Plan)3. Annual Performance Review: Outline performance goals, results achieved and contributing

factors. Provide direct feedback. Focus on both measurable activity and intangibles in determining overall employee performance.

1. In conjunction with Nirvana’s Individual Development Plan, the managers will assess each employee using Nirvana’s Management Performance Checklist

The Culture of Your Firm

MODULE 3

Organizational Culture

8

Describe the culture of your firm. What changes would you make? How?

Current Future• Low Morale• No clear career

development path• Less engagement by

non-partner staff• No

empowerment/accountability

• Individual mind set; no collaboration

• Stakeholder Focused Culture - When employees flourish and are happy, clients flourish and are happy, and the business flourishes

• Team focused environment• Collaboration• Open minded• Philanthropic /Community involvement• Cooperative; Communicative; Fair; when in doubt,

be generous• Creativity• Empowering environment

Today, we face challenges with partner engagement, criticism and cohesiveness. Our plan to move to our desired state will be led by leadership and example. We will hold ourselves accountable to lead staff meetings on a rotating basis with a requirement that each of us actively participate in every staff meeting. We will lead by example and invite communication, participation and collaboration in each staff meeting. Employees will have the opportunity to share creative ideas during a quarterly “think-space” session and the team will vote on the most creative ideas to implement. We will set a standard that requires colleagues to be generous and cooperative with each other; to manage concerns and differences through communication; to participate in a community support related team event two times per year. Danielle will take the lead on implementing the new structure, with the support of staff members who are interested in participation on the “Nirvana culture committee”.

Incentive Compensation

MODULE 4

Incentive Compensation

9

The new partners’ bonus compensation is designed to drive growth and business development because one of our major goals going into the next year is growth. In the past year, we were unable to add any new clients and this compounded the loss of a few larger client relationships which we hope is addressed in the Service Model. While we understand compensation does not change the company values or culture, we hope to motivate our partners and spark a culture to be more focused on growth and business development by restructuring the partner compensation plan.Taking into consideration that we have never paid incentives to our partners we are looking to restructure the total compensation package by reducing the base salary, which is well above industry average according to our benchmarking study, and then supplement this reduction with a very competitive bonus plan. We believe that the profitability and equity compensation will increase exponentially, creating a “Win-Win” scenario for both the partners and the company as a whole. Our goal is to bring on an additional $100m, and we believe that if we can associate at least one-half of the new assets to the new compensation plan, it will more than pay for itself.The new partners’ bonus compensation to drive growth and business development will be a follows:

• 4 year payout on new assets:1. Year 1: 40%2. Year 2: 15%3. Year 3: 10%4. Year 4: 5%

Design Advisor Bonus Plan

Partner Compensation

MODULE 5

Partner Compensation

10

Currently, Nirvana’s partners are compensated far above the benchmarking upper quartiles and it is not clear if today the compensation is aligned to drive effective teamwork across the group. We see this as an opportunity to more directly align the partner compensation to drive more firm level growth vs. individual partner growth. Additionally, there is opportunity to begin having Curtis acquire ownership in the firm. We are proposing implementing a structure of Base + Bonus + Dividends to the Partners. The net effect of the restructure of the salary, is to lower their compensation from a Base + Bonus perspective. We will tackle Dividend distribution during the next phase of our compensation discussion when we discuss equity.Also, it appears based on both the Inv News and IWS 2013 Benchmarking Study the Owner Compensation might be well above the benchmarks on both an individual basis and in total across the firm, while Curtis appears to be below the benchmark on his base and total compensation which could be problematic for us a firm to retain him long term. In addition to brining our partner’s more in-line with the benchmarks, our team strategy is to bring Curtis Love’s salary more in-line with the industry standards for that role, possibly into the 3 rd Quartile, with consideration to providing Curtis with equity ownership in the firm. The net effect of the changes is a targeted reduction in owner compensation by $462K and an increase Curtis’ compensation by $281KDATA:

Set the base compensation for your partners.

Owner Adv Com $1,300,000Bonuses $330,000Owner non adv comp $281,867Owner non adv bonuses $54,555Total Comp for Owners $1,966,422

Benchmarking from IWS Benchmarking: (Firms with >$1B in AUM)

Partner Compensation Summary

Partner Current OwnershipCurrent

Compensation (2014)

Benchmark Base (3rd Qtl-

Inv News)

Benchmark Total Comp (3rd Qtl-Inv News)

% of current comp above benchmark

Proposed Base

Proposed Target Bonus (75% of Base)

Total Comp Prop

Difference (current vs.

prop)Kurt Kobin, President 32.50% $685,000 $260,750 $531,283 22% $275,000 $206,250 $481,250 ($203,750)Christine Novich, CEO 32.50% $585,000 $260,750 $531,283 9% $275,000 $206,250 $481,250 ($103,750)Dave Goal, CIO 25% $510,000 $250,000 $400,000 22% $250,000 $187,500 $437,500 ($72,500)Danielle Peters, Principal 10% $520,000 $250,000 $380,000 27% $250,000 $187,500 $437,500 ($82,500)Curtis Love, COO 0% $125,000 $200,000 $300,000 -140% $175,000 $131,250 $306,250 $181,250

Totals $2,425,000 $1,221,500 $2,142,566 12% $1,225,000 $918,750 $2,143,750 ($281,250)Totals without Curtis $2,300,000 $1,021,500 $1,842,566 20% $1,050,000 $787,500 $1,837,500 ($462,500)

Partner Incentive Compensation

11

We are proposing a quarterly bonus structure that will target 75% of each partners base salary. There will be the potential for upside for partners based on several factors as well as perhaps downside risk. The structure will include the following parameters:

• 50% based on individual level goals:

• Producers: net new asset growth relative to goals

• CIO: attribution analysis and risk analysis

• COO: service level performance of the operations team

• 25% based on firm performance

• 25% based on a team based project performance

Please see in the previous page the net effect in total compensation payout for each of the partners as a function of the structure. Here is how the bonus might play out, assuming the owners were to achieve their targeted bonus:

Create, discuss and define incentive compensation for partners.

PartnerProposed

BaseProposed Target Bonus

(75% of Base)Kurt Kobin, President

$275,000 $206,250

Christine Novich, CEO

$275,000 $206,250

Dave Goal, CIO $250,000 $187,500Danielle Peters, Principal

$250,000 $187,500

Curtis Love, COO $175,000 $131,250

Other Initiatives

12

Describe any other initiatives you will undertake as a firm. These may be outside of the scope of compensation and people but may be important parts of your case.

Notes

Initiative Explanation

1. Broaden Equity Ownership

Equity ownership is too concentrated at the top. We would like to spread the ownership to help drive our growth strategies.

2. Pursue Alternative Distribution Models (i.e. Retirement Plans)

With Danielle’s experience in the technology sector, and as a key avenue for growth, we have considered adding retirement plans (401ks), as an additional offering to our business owners.

3. M&A Activity

At over a billion dollars in assets under management, if we really want to double, triple or quadruple in size, a merger or acquisition must be considered.

4. Firm Valuation

Before embarking on any M&A opportunity, we must evaluate our company to determine what level of capital or equity we are prepared to offer.