Producer Compensation – Profitability Drivers

“I’m paying producers too much and it’s causing a problem with bottom line profitability.” Well, maybe. Sometimes it’s not just simply the percentage of commission going to the producer. Sometimes there are other factors that impact profitability.

Part of our Producers as Profit Centers tool looks at servicing costs for each producer book of business. You should expect to see some disparity, especially where CSRs are assigned to business based on producer. Since producer books vary in size, so with CSR books. If those disparities are too great, however, you may need to look at realigning teams to even out the workload. Everyone hurts when some are overworked and some don’t have enough to do.

Sometimes the workload disparity is magnified when there is a big difference in average account size. Account size is probably the most significant of the productivity drivers. Where producers have books made up of mostly small accounts, not only will the book likely be unprofitable but the servicing costs are likely to be high unless a conscious effort is made to treat these accounts differently.

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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.

Celebrate and Share Success with Employees

We’re at the beginning of March already. Is 2010 shaping up to be a lot like 2009 for you – and is that a good thing or a bad thing? If things are looking up – or if you have been able to thrive in spite of all the bad news – be sure you and your staff celebrate your success. Even the small ones count. Tell your staff what’s gone well and what you plan for the New Year to make it even better.
Sharing success is part of sharing the vision for your business with those who will help make it happen. It’s all part of the 7 BIG Strategies for managing your business from a strategic perspective. These seven strategies can mean the difference between whether you survive the run-off from the economic upheaval or thrive and grow in the new decade.

Read more about the 7 BIG Strategies here…

Profit Improvement

There is nothing more important to your bottom line than attracting and keeping great people. It can mean that your business is more profitable – as much as 30% to 40% more profitable.

Even if you think the economic downturn puts more employment chips on your side of the table because jobs are scarce, the best people will have opportunities to move on if they are not happy. If you’re like most business owners, you’re asking people to work harder with less. There is no money for extra rewards – you may have cut back or freeze salaries. It’s more important than ever that your employees are committed to the job they’re in – and working hard to keep it successful.
For tips on finding and keeping great employees see our recent newsletter. Read it here.

Uncover Undercover Boss to Get Better Results

I must admit, I'm not a fan of reality TV. It's way too contrived. So I ignored all the hype about "Undercover Boss" as just another in a long line of cheap television. I guess I shouldn't have been surprised to see how may of my friends and business associates actually watched. I was surprised to see write-ups and reviews and posts and comments in many of the business blogs and journals following the first program. And as I read about the program - after the fact - I'm pretty sure I wouldn't like it. Too contrived. And the implication that a good manager was 'set up,' not in the name of improving company performance but as a cheap entertainment trick, is disturbing. But conceptually, the ideas of the boss dropping back into the ranks to do the jobs that employees are asked to do and try to overcome the obstacles that employees are expected to overcome - now that is appealing. As a line manager in s large insurance office, it's something I used to do regularly. And it almost always paid off.

1. First, the process got an objective look. As someone who was trying to follow procedure, and who didn't do the work all the time, I was able to see things about the process that didn't work or didn't make sense. Employees are often too busy to even think about how to what they're doing better or faster or more accurately. And if they do come up with an improvement, they're hesitant to bring it forward.
   
2. Second, and in some ways even more important, the relationships grew stronger. There was always a good exchange between me and the employees sitting around the desk I occupied. I asked them questions and engaged them in my effort to understand their issues. They responded, sharing frustrations and sharing ideas for improvements.
   

I wasn't undercover. Being right out in the open, working side by side with people doing the work I usually supervised, had the potential to be constraining - to make them uncomfortable. It almost never did. They felt more respected. It gave me a chance to show them that I valued their effort as well as their ideas about the job itself - much more so than just saying it.

An engaged workforce is worth more to your bottom line than pretty much anything else you can have in place. People are much more likely to care about you and your company and your goals, if they believe that you care about them - as people not just as assets or liabilities. When your employees care, your customers benefit.

If "Undercover Boss" catches on, will we see more business owners and managers snooping around? If they're paying closer attention to what's really going on in their business, that would be a good thing all around.

Contingency Planning

After 36 hours without electricity, I know that my contingency plan, which is supposed to ensure emergency preparedness for the business, is not up to snuff.

• It's not up to a foot of snow and 20 degree temperatures.
• It's not up to hauling firewood from the back of the property (not quite 50 yards) in a bushel tub.
• It's not up to a generator with a pull starter that I'm too puny to pull (thank goodness for helpful neighbors).
• It's not up to a cable Internet connection without power to run the modem and the router.
• It's not up to conducting business from a cell phone that is email enabled but not Windows enabled.
• It's not up to .... okay, enough whining. You get the picture.

My contingency plan needs re-working. My clients were all sympathetic and understanding. We rescheduled a few phone calls and changed a few due dates. How about your contingency plan? Placerville, California, a town of less than 10,000, had at least a couple of dozen insurance agents - none of whom could open their offices. There were downed tree limbs all over the area - some across roadways, some on power lines but others on the roofs of homes. According to the local paper this morning, there was a "moderate" increase in vehicle collisions reported to the local California Highway Patrol Office. You know there were a lot of folks trying to reach their insurance agents or the company claims office, or both.

How would you have fared in this situation?

Need help bringing your contingency plans up to date? Here are a few good things to help you in your planning. If you would like additional help, please feel free to e-mail me to discuss the status of your contingency plans: pam@transformationadvisors.com

Ultimate Sales Planning

Sales Planning is both strategic or tactical. It is indeed a critical part of any strategic plan but the plan itself has to include all the tactical elements as well.
Frequently

The sales planning process should help each producer set personal goals and the action plans to achieve them. And, each individual sales plan should support the overall agency goals and objectives.

Sales isn’t a department–it’s an attitude!
The most profitable and successful businesses are highly focused on new business sales. In the face of economic turmoil, increased competition, and alternative distribution systems, every business needs a genuine sales focus built into its culture. Business development should be part of every individual’s job description. This is the ultimate in sales planning.

Read more about Sales Planning here.