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Compensation

How much should you be paying your producers and CSRs? How about nonproducing owners? How should incentive plans be structured? Should CSRs get bonuses? This area of the VU research library includes articles that address these and other compensation issues.
The title alone, I’m positive, has already caused a handful of agents to hyperventilate. If the reader is an independent agent and is not reviewing, or at least not offering to review, each renewal in detail, is not being an advocate for their clients, and is not working with all their clients to assess their exposures, then the client does not need to pay an agent 12%, 13%, or 15% commission. The agency is not earning their keep.
Agency owners are drawn to salary surveys like flies to sugar because we’re never sure whether we are cheating ourselves or our employees in terms of their salaries. That’s why our Composite Group studies, the largest in the industry, is released in the Fall instead of in the Spring. We don’t ‘think’ that numbers lie, we KNOW they do! Statistics can give you averages and medians, but who wants to strive to be average?
You hire a new or inexperienced producer. Is there any guideline as to how much time should be provided before he or she reaches a level of production to cover salary and benefits?
For years we have been struggling to identify and pay PL producers. Once you differentiate the Order-Takers from the Relationship Managers among your producers, here’s the way of rewarding them properly and profitably to build the agency’s PL book of business.
What should Independent Agents do when faced with personal lines commission reductions? My answer: Fight for your position in distribution and add the value you should be adding, even in the face of fear. We have fear, as agents, to push back against our insurers.
Is the customer service representative (CSR) position in an insurance agency considered to be 'exempt' or 'nonexempt' under the Fair Labor Standards Act (FLSA)? This was a question recently posed to our agency management faculty. In this article, several faculty members provide an opinion, along with an article by Judi Newman on related overtime issues.
Owners of insurance agencies often ask questions about how to properly pay their insurance agents and other employees working within their business. Because of increased litigation in this area, you must ensure that all employees are properly classified and paid.
The FLSA (Fair Labor Standards Act) requires three things to make an employee exempt. Most agency employees are, by Department of Labor definition, non-exempt, regardless of how agency owners or employees would like to view themselves or each other. And, if you think that no one notices, here are a few sobering statistics....
It’s no secret that employees’ attitudes about their jobs and benefits can range from high praise to dissatisfaction. What’s less understood and harder to find out is exactly what matters to employees and how effective various types of compensation, benefits and personnel policies are in stimulating employee productivity and retention. Unless you discover what really matters to employees, you’ll never know if your compensation and benefit programs are working for your agency.
Wouldn't it be nice to have employees looking for more business to handle or helping to innovate to permit more work to be accomplished without the addition of staff? An Incentive Compensation Program (ICP) accomplishes that goal -- but it takes a few years of education to teach the employees that this is really as simple as it sounds. Below are some tips on how you can accomplish this.
Most of the compensation questions our agency management gurus get deal with producers since the variations are widespread. But, compensation issues for managers, CSR's and others can be just as complex, as indicated by this recent question, 'How would you structure compensation for a commercial lines manager? This is a new position and the individual is also a producer paid on commission.'
During the soft market, most agents continued to grant salary increases and permitted their profits and personal incomes to erode each year. However, prudent agents implemented Incentive Compensation Programs (ICP) to reward employees and to keep the strongest performers in their agencies. As we all know, the soft market is over. However, while the circumstances are different than a soft market, the ICP in a hard market is a tool to both reward and motivate your strong employees....
If one company is willing to pay three times more bonus for the same results, for the same book, same ease of doing business, and the same benefits to your customers, why not place more accounts with that company? This is the question I have asked thousands of agents over the last twelve years and few ever answer correctly.
Does your agency have a formal compensation and reward system in place? Is it working the way it should? Is there a way to tie productivity and compensation together so that increased productivity leads to increased compensation? Better yet, can you ensure that increased compensation leads to increased productivity?!
When you mention employee evaluations in most insurance agencies, the owners begin to fidget, admitting that they do them sporadically, if at all. Too often, they admit that they give everyone the same percentage raise, hoping that no one complains. If a complaint occurs, the owner most often buckles and gives the complainer a little more (after all the employee is valuable and the owner does not want to lose him/her). There's a better way....
Most bonus plans are usually not tied to salary or job standards and, in most instances, agency owners end up paying a bonus to employees to do the job they were hired to do. To be effective, a bonus plan must be tied to growth and it must be fair to both employees and owners.
There are as many variations to employee evaluations as there are compensation programs. However, we have found some common ingredients to the most effective evaluation devices that can be easily duplicated and used by agencies throughout the U.S. and Canada.
We entice salespeople into the insurance field with the incentive of continuing growth of income through renewal commissions. Yet we have never properly addressed what happens when the producer reaches his Comfort Zone and is no longer seeking new business to the same degree as previously. This Growth-Loaded Producer Compensation program is designed to challenge producers and keep them going after new business.
'What is the average renewal commission that an owner should give his producers? Is there a difference to be considered as to personal vs. commercial lines compensation?' These are among the most common agency management questions we get, ranking right up there with, 'How much is my agency worth...1.5 time commissions?' There are no simple answers to these questions, but we'll try to give you a little more than 'it depends.'
During the soft market, most agents continued to grant salary increases and permitted their profits and personal incomes to erode each year. However, prudent agents implemented Incentive Compensation Programs (ICP) to reward employees and to keep the strongest performers in their agencies. As we all know, the soft market is over. However, while the circumstances are different than a soft market, the ICP in a hard market is a tool to both reward and motivate your strong employees....
An Incentive Compensation Plan (ICP) ties compensation gains by employees to productivity and profit gains by the agency or company. While merit raise systems are most often based largely on judgment and subjective factors, an ICP is designed to objectively measure how an employee's performance impacts the bottom line and the organization's mission and objectives.
Your employees, valued and hard working, are still expecting you to “treat them right” even though both your commission income and your bottom line continue to be stressed. Now you're faced with an article on incentive compensation and you ask yourself, “Why even bother reading this? I can’t afford the raises and bonuses I’m forced to give my employees now.” Here's why....
We “have a feeling” when an employee is performing badly at their job, but we don’t know exactly how badly or how to measure the performance toward rehabilitating or replacing the employee. Measuring employee performance appears to be a hazy cloud for most agents and managers. But you can measure and compensate owner, manager, producer, and CSR performance.
Many agencies have provided levels of financial security for their producers (owners and employees) by guaranteeing them a salary, draw (with no financial pressure for returns if not earned) or other form of regular compensation. During strong times this works well. During soft or slow periods this process will always reflect the weaknesses of producers who do not live up to their potential (or expectation).
The concept of fair and motivating producer compensation still eludes most agents who have found themselves over-compensating producers who are not generating the growth needed by the agency. The Million Dollar Question is, “How do we provide a fair compensation for producers that influences and motivates them to continue to grow the books of business that they produce for us and that supports their financial needs?”
One of the most common questions asked by agency owners is, 'What is the average producer compensation for new and renewal business?' You may be surprised to learn that such numbers actually exist. However, they are also almost completely useless. Here's why....
One of the most common questions that we get each week is, 'How much should we pay producers?' Questions like these are equivalent to asking, 'What is the 'average' that one should spend on a Christmas present?' The answer, of course, is 'It depends.' In this article we'll take a look at what other agencies are doing and explore a compensation methodology called 'base and growth.'
Unfortunately, there is no magic to setting up producer compensation programs for commercial lines. As many agencies as exist is just about how many different types of compensation plans are in place. Each agency owner or manager asks fellow agents to describe how they handle commercial compensation and invariably add their own twist to it. There are however, three things to keep in mind...
Past articles in industry publications have incited many calls from anxious agency owners. The articles were, unfortunately, very misleading. Each inaccurately concluded that big agencies paid producers better than small agencies (e.g., $116K vs. $47K in one article). They often concluded that big agencies could afford to pay more, so they did. The problem is that these 'studies' are often based on worthless statistics that can lead readers to several wrong conclusions.
NEVER offer equity in a producer's created book of business. Well, 'NEVER' may be too absolute. Let me put it this way. Never offer equity only in a producer's book of business if the goal is to reward a producer for success or to cement the relationship between producer and agency. The forced 'acquisition' of a producer's equity can eliminate the profit for each account for as much as TEN YEARS! Here's why....
Some agency owners attempt to maximize profits by minimizing producer commissions. What they don't realize is that “sharing the wealth” with the producers who can grow the agency actually enriches owners by three to four times what they pay their producers if they properly analyze their agency operations and financials.
A 1999 tax court case determined that advanced commissions received by an insurance salesman were not taxable when he received them. The Tax Court determined that the salesman received loans and was not required to report the income until the commissions were actually paid. This is contrary to the normal practice in the industry. To learn more about this situation, keep reading...
Incentive Compensation is a compensation method in which employees achieve increased compensation (raises) for increased productivity. It teaches employees the shocking truth about growth and profitability – we can only afford to keep paying more to employees if we grow and are profitable (without taking money from agency owners’ pockets). Here's when and how it makes sense in your agency....