Strategic Management for Independent Insurance Agents & Brokers: Positive Change for Sustained Excellence

Thursday, April 29, 2010

Producer Compensation - 3 Keys

Having a conversation, that almost turned into an argument, with a producer about compensation. He was adamant that all it took was to pay a high percent of commission. "Any good producer is going to be motivated by money - and nothing else matters." Well, he should know, shouldn't he? He's a good producer. But it's been a tough year and he didn't get a raise - meaning his commissions were flat. He didn't feel he had worked any less but he lost a couple of large accounts and all his new business production just went to fill the void left by lost business and lower exposure bases. I think his situation is not all that unusual.

This producer wants a bigger piece of the pie - he wants the agency to increase the percentage of commission paid on new business. "It would be a good investment," he says. The agency owner, on the other hand, is looking at expenses and flat production and thinking he needs to lower the new commission rate, pay a level commission to encourage net new growth and only pay higher commissions when the book grows. He is convinced that the agency can't afford the current plan, let alone a richer one.

I'm going to help them update their producer compensation plan and try to help each meet his goals. Because I think that's what a good compensation package does. It balances the costs with the benefits (revenues) and the agency's goals with the producer's goals. In fact, I think there are three requirements for an effective sales compensation plan.

  1. Affordability. If you pay too much, the financial health of the business is vulnerable. That doesn't help anyone.
  2. Competitiveness. If you don't pay enough, you can't attract the best people and keep them satisfied.
  3. Alignment. Producers should be incentivized to producer business that is aligned to agency goals. And, compensation plans should be flexible enough to ensure that producers can meet their personal goals as well.

If the compensation plan meets those three requirements, it should be a winning proposition all around. That won't cause the market to harden or the economy to improve. But it could improve the situation in this agency. Maybe others as well.

I recently recorded two webinars for "The Inside Track" on the IMMS website. Watch the Webinar here.