Trek Enterprises S2 WORKBOOKDecisions and Notes for Modules 1 – 5

BSMARTer Business Simulation Management and Relationship Training

Organizational Structure and Compensation

MODULE 1

Service Team Structure

3

New Org Chart

Jim KerrCEO

COOActively Seeking

(Q1/15)

Core Admin2 Reporting Analysts

IT ManagerOffice Manager2 AccountantsReceptionist

HR Manager – Actively Seeking

(Q1/15)

Jackie StrangOperations Mgr.

7 Client Service Managers

Leo CoyCIO

Reid HadnotTrader

Jr. Trader – Actively Seeking

(Q2/15)

Monty CottCCO

Nyota HuraChief Client Exp.

Officer

4 Client Teams14 Lead Advisors

4 Service Advisors

Notes on Reorganization

4

Given the nature, size and impact of the merger of two firms, we felt the most immediate strategic priority was to create an organizational structure that would help us address some key issues in the newly formed organization including:• Technological and process differences• Capacity constraints• Blending investment management models• Clarifying accountability and decision making process• Lack of organizational scale• Compensation differences We feel that the newly implemented organizational structure with some key functions being centralized maximizes resources of the firm surrounding our comprehensive Financial Planning offering (including Investment management, Tax Planning, Retirement Planning, Trust & Estate Planning, and Financial Planning) which provides for an optimal client experience. Some key benefits are:• Streamlined decision making and accountability among the senior leadership team. We

believe that organizing under our senior leadership team, each with a clearly designed area of responsibility would help the organization become much more efficient in making strategic decisions.

• Clarified roles & responsibilities across the new organization. Clearly defining roles and responsibilities enables the firm to assign accountability, benchmark performance and measure individual performance at all levels of the firm.

• Preserve and nurture a positive culture of teamwork and mentorship, as well as enhance the environment to help fuel future growth. Building on our history of teamwork, service and community involvement, we felt it was critical to preserve an environment that has been so successful in the past and infuse it with element that rewards future growth.

• Better integrate and leverage the strengths and resources of two highly successful firms into a more efficient organization. Consolidating the operations, technology and administration of the firm under an experienced COO will enable the firm to operate more efficiently, build scale and maximize the client experience.

• The hiring of an experienced HR manager to oversee all aspects of workforce development and management including training and development, recruiting and interviewing, salary & benefits, and to serve as a liaison between Management and employees.

Service Team Structure

5

Draw a picture of your service team structure.

Lead Advisor

Service Advisor

Analyst

CSA

The primary managers of the client relationship and the most experienced advisors in the firm. Responsibility for managing existing client relationships and formulating and implementing advice . Expected to cultivate referrals, develop new client relationships and supervise the client facing team.

Responsible for managing existing client relationships in partnership with the Lead Advisor. They will help formulate and implement advice and solutions but will rely on technical specialists and Lead Advisor for decision making.

Performs research, analysis, and manages investment options. Provides information for the Lead and Service Advisors and makes recommendations on managers, advisory service products, investment selection, suitability, and reporting decisions.

Responsible for preparing client reports and maintaining contact with clients to provide or obtain updated information, schedule meetings and trouble shoot problems. Primary liaison to operations organization.

Service Team Structure

6

Our philosophy is to create service teams based on the broad segment of clients we serve (i.e. Women in Transition, Small Business Owners and High Income Families) and the products we offer. Staffing of these teams is based on the technical competencies of each of the team members and how they pertain to each of our practice areas. We have chosen to adopt a cross-pollination approach to our team structures to allow for continuing education and mentorship of the junior members of the team. This is in keeping with one of our key goals for the new firm which is to provide formal career development, training and mentorship programs for our employees. The new HR Manager will be critical in establishing these new programs. Lastly, it will be more challenging for a service team to break-off on their own if members from the other teams are active participants in their teams.

Provide an explanation of your service team structure.

Compensation Benchmarking

7

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

Position Salary Bonus Total

Your Lowest-Paid Employee

$86,957 $13,043 $100,000

Your Highest-Paid Employee

$218,182 $21,818 $240,000

Mid-range $152,569 $17,430 $170,000

Benchmark Median

$110,000 $18,000 $134,000

Benchmark Third Quartile

$133,143 $36,850 $197,500

See Appendix A for position compensation information Source: 2013 InvestmentNews/Moss Adams Comp Study

Non-partner lead advisor

Compensation Benchmarking

8

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

Position Salary Bonus Total

Your Lowest-Paid Employee

$90,909 $9,091 $100,000

Your Highest-Paid Employee

$218,182 $21,818 $240,000

Mid-range $154,545 $15,545 $170,000

Benchmark Median

$110,000 $24,000 $134,000

Benchmark Third Quartile

$133,143 $63,857 $197,000

See Appendix A for position compensation information Source: 2013 InvestmentNews/Moss Adams Comp Study

Non-Partner/Lead Advisor

Compensation Benchmarking

9

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

Position Salary Bonus Total

Your Lowest-Paid Employee

$395,000 $0 $395,000

Your Highest-Paid Employee

$650,000 $0 $650,000

Mid-range $522,500 $0 $522,500

Benchmark Median

$175,000 $65,000 $240,000

Benchmark Third Quartile

$250,000 $130,000 $380,000

See Appendix A for position compensation information Source: 2013 InvestmentNews/Moss Adams Comp Study1 Full partners have not participated in bonus program prior to 2014

Full Partner1

Compensation Benchmarking

10

We are faced with a number of issues relating to our current compensation structure.:

• Employees have always been paid a bonus regardless of firm or individual performance.

• We have never conducted performance evaluations on partners or junior partners.

• While we use a simple form for employees we have never evaluated partner performance.

• Most importantly, there are wide discrepancies between compensation for advisors in the same role, regardless of tenure, achievement or professional designation

• Trek wrote a compensation policy in 2013 after the merger of the firm, but it is not well understood nor does it address the issues above.

In a phased approach, we will implement a compensation change designed to normalize salary bands for junior partner and non-partner advisors over the next 24 months. We are sensitive to our company’s culture and our advisor morale and want minimize the disrupt ion as much as possible. As an example:

• Bryce Stogner and Elina Gross are both Non-Advisor/Junior Partners. Bryce has 12 years experience and is a CFP. He made $240,000 in 2014. Elina has 8 years experience and is a CPA. She made $100,000 in 2014. We plan on creating a base salary range for this level that ranges from $100,000 to $140,000. The target incentive bonus for each advisor will be 75% of their salary. The total comp will range from $170,000 to $245,000. The incentive bonus will be based on the factors listed on slide 12 with the primary focus on new client acquisition and new flows from existing clients. The plan would be to reduce Bryce’s salary but increase his bonus over 2 years to allow him to make the same amount of compensation via the variable component.

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

Staff Selection and Performance Management

MODULE 2

Performance Evaluation

12

Design a performance evaluation form. Follow the worksheet. (20 minutes)

Job Factor Explanation

1. New Client AcquisitionTrek’s goal is to grow by 12% year over year and all employees’ performance will be measured, in part, on their ability to generate referrals and to contribute (in some way) the growth of the organization.

2. Deepen Client Relationships

Maintaining a high client retention rate and increasing our share of wallet are critical elements of our mission. In addition, we will also measure baseline profitability per relationship relative to the entire client portfolio.

3. Client SatisfactionEmploying client surveys, we will measure employee effectiveness and client loyalty with a goal of achieving a “top 3 box” score on a scale of 0-10 for 90% of our respondents.

4. Mentorship & Collaboration

The merger requires an immediate heightened attention to employee “inclusion” and senior management “access”. We will work to ensure open channels of communication are created and that employees opinions are valued.

5. Skill DevelopmentTraining and ongoing professional development is critical to grow and challenge employees. We must also keep up to date on all important regulatory matters, & professional designations.

6. Team Participation

Bringing two highly successful teams together into one organization and accomplishing the aggressive growth and client satisfaction goals we have set for the firm will only happen if we perform as a cohesive team. We will strongly encourage and measure our success through effective communication, teamwork and partnerships.

13

Performance Evaluation

Our new performance evaluation form & process provides that every employee will be evaluated on 6 key business factors with varying weightings based on individual job functions. Every employee will have a set of specific goals established for each job factor. We feel the evolution of the old performance program to the new one is critical in creating a new sense of shared culture to bring the new teams together. We are committed to implementing a performance evaluation process which enables Trek Enterprises to accomplish the following objectives:1. Fully develop employee potential and improve communication relating to performance.2. Provide a method to reward employees on a merit basis 3. Improve productivity and the performance of the firm4. Reinforce Trek’s mission, value and culture of unparalleled performance and professional

conduct.The new HR Manager will be instrumental in implementing and rolling out this new program. In addition, this person will be responsible for designing and rolling out a 360 degree review program designed to measure the perceived performance of the senior leadership team.

Notes

14

Performance Evaluation

Describe how the forum will be used.

An important part of managing our employee’s performance is establishing goals for the upcoming year. The purpose of setting these goals is not to detail daily activities, but to help define larger opportunities and challenges that one will work toward over the upcoming year. To ensure that employees have effective goals, Trek utilizes Performance Evaluation SMART criteria:• Specific - The goal should define specific results and provide details on what is to be achieved.• Measurable - Success must be defined and measured. • Achievable & Ambitious - Goals should be challenging and go beyond your day-to-day duties

while at the same time be achievable.• Results-based - State the results to be achieved rather than the activity or work processes leading

to those results.• Time-bound - Establish a date / time limit. State the date or frequency by which results must

happen• Creating SMART goals helps everyone clearly understand what is expected from in their role and

to ensure that employees are properly evaluated.At Trek, we will• Have a completed performance evaluation for all employees• Ask employees to complete self-evaluations. We believe feedback from employees on their own

performance provides their perspective and a starting point for the performance discussion. • Seek feedback from key co-workers. This provides a greater level of detail of interactions. • Consider if their work expanded in scope or amount of responsibility. • Judge performance, not potential. Focus on actual contributions and results achieved. This is a

review of “accomplishments”, not of “potential.” • Measure achievement, not progress. • Review performance for the entire cycle, not just small periods of time.

The Culture of Your Firm

MODULE 3

Organizational Culture

8

We have a successful, strong culture which has been built on a customer centric approach from both firms, there is clearly deep trust, focus on service, and deep client relationships. Decision making has been done on consensus basis which has lead to inertia. As such, and to move the combined firm forward, we have created an Office of the CEO. We have also created a reporting hierarchy below this position that clearly grants each of the members of the “C” suite with the decision making powers necessary for the successful operations of their teams.Upon completion of the firm reorganization, TREK has decided to no longer extend Hika’s contract. TREK has decided that it would be better served if it hired a new CCO, an HR Manager and a Jr. Trader. We are actively seeking all three of these positions. From the chart found on page 1, it appears clear as to the role of the CCO and Jr. Trader, which we believe will be important for the ongoing operations of our firm. The HR Manager’s position will, however, play an immediate, pivotal role in uniting the two firms.The merging of the two firms, and their respective cultures, remains a primary focus for our newly combined firm. The HR Manager will be responsible for putting in place a formal career training and development program, addressing base compensation and job title issues across the entire organization, creating a more robust performance appraisal process and establishing a bonus pool for lead associates that includes a component tied to new business. The HR Manager will also be responsible for leading TREK’s continued community outreach program, which remains important to the firm, as well as promoting the firm culture of teamwork that has been established by Leo and Jim.

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

Incentive Compensation

MODULE 4

Incentive Compensation

9

As a critical part of normalizing the compensation for all associates and advisors, Trek will implement an advisor bonus plan which will reward achievement and influence behaviors consistent with our stated mission, vision and enhances our employee culture. Based on the eligible bonus pool, each advisor’s bonus payout will be determined relative to a number of measurable factors (detailed on slide 12 “Performance Evaluation Factors”). As with each position within the firm, each job factor is weighted according to its relevance within the assigned role. For the advisor role the key metrics used to determine bonus performance are weighted as follows:

40% New Client Acquisition: With an aggressive growth goal, cultivating new relationships is a critical component of each Advisor’s performance.

30% Deepen Client Relationships: Keeping the clients we have and strengthening their relationships with an eye on profitability is paramount to maintaining the strong foundation of the business we have built.

15% Client Satisfaction: Happy, satisfied clients are less likely to leave and more likely to refer opportunities.

5% Mentorship and Collaboration: As leaders within the firm, advisors are expected to be available resources and accessible leaders to associates throughout the firm.

5% Skills Development: At a minimum, advisors need to keep their licenses and professional designations current. The most successful advisors will continue their pursuit of professional degrees and designations and continue to be a competitive advantage for Trek.

5% Team Participation: Advisors from both organizations will be instrumental in leading the integration of the organization and are expected to be proactive leaders in our collaboration effort.

Design Advisor Bonus Plan

Partner Compensation

MODULE 5

Partner Compensation

10

With the implementation of the new organization structure, Trek will be implementing anew base compensation model for its junior and senior partners. All partners will receive a salary and bonus and participate in the profit sharing (relative to their equity stake and new business contribution). Junior partner serve as advisors and as such, their base compensation will be part of the organizational compensation restructuring (as described on slide 10).Senior partner base compensation is influenced by a number of unique considerations, most notably that existing senior partners are compensation is currently well above the normal industry benchmarks. Also, senior partners have never before had clear divisions of labor within either of the pre-merger firms and they have never been objectively reviewed on any aspect of their performance. In order to implement a base compensation standard, the senior partners at Trek have made the following agreements:

• The existing senior partners have agreed to cap their existing base compensation levels for the next 24 months.

• Each partner will have a clearly defined salary and bonus based on prior year’s compensation level.

• All senior partners will participate in a 360 degree peer review to evaluate their performance and review with the rest of the senior leadership team.

• New senior partners in a senior partnership role will be compensated within normal industry compensation bands (based on experience and past performance)

Two examples to illustrate the methodology:

• Jim Kerr has taken on the CEO role and has a current cash compensation of $650,000. Within the new system, Jim will take a salary of $430,000 and be eligible for a bonus of $215,000.

• Our soon to be hired COO is expected to be a seasoned veteran with large advisor experience in very senior roles. As such, we expect to pay a premium to get the top talent in this critical role. We project the salary to be in the range $150,000-$200,000 with a bonus potential of between $75,000-$100,000.

Set the base compensation for your partners.

Partner Incentive Compensation

11

As noted earlier, Trek partners and junior partners participate in a profit sharing program in addition to their salary and bonus compensation. Participation in the Trek Profit Sharing program is determined by equity in the firm and new revenue generation. The addition of three new professionals (COO, HR Manager and Jr. Trader) will shrink the profit sharing pool temporarily. The senior team views this as a long term investment that will pay great dividends as we accelerate our growth and increase our profitability going forward.

Create, discuss and define incentive compensation for partners.

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. Design and implement a formal succession plan

The merger and decision to hire an outside C-level executive has accelerated the need to create and document a clearly defined succession plan for the firm

2. Marketing/branding campaignAs indicated in our previous submission, rebranding the newly formed Trek Enterprises has been a high priority for our firm. Now is the right time to roll our new brand out to our clients and the market.

3. Technology & operations integration

Our new COO will be charged with consolidating our technology platforms and operational processes across the organization.

4. Assess possible regional expansion/acquisition

After addressing many of our infrastructure needs, we again feel it is an optimal time to look at new business development opportunities.

5. Referral development strategy Formalize a program and allocate resources to enhance and accelerate our existing referral efforts.

6. Determine 3-year capital investment plan

In the post merger environment, we feel it is critical to evaluate our mid and long term capital investments to ensure the financial well being of the firm as it evolves.