|
Producer compensation continues to be a 'hot topic.' Probably because we continue to experience a 'soft' market and most everyone is trying to attract and retain the successful producer. As we have received several calls for information recently, it seemed appropriate to share a few ideas with you. Hopefully, you will find these thoughts of value in your agency activities.
Most calls start with the question "I have a chance to recruit this really good producer, but I can't seem to come up with an acceptable compensation plan. Do you have any suggestions?" Our answers have been founded on four premises:
First, there is no one single producer compensation plan that serves all agencies. Second, what you can afford to pay should reflect the number and cost of the services that you provide and the functions that you expect the producer to provide. Third, NO compensation plan will 'motivate' a poor producer into a good producer. Fourth, NO compensation plan will make up for a lack of management or a lack of appropriate markets.
Strangely, the responses are usually the same."But he says that he can get such and such from the ABC Agency" or "He has read that today's producers are entitled to top commission rates AND a percentage ownership in the book of business which they sell." Both are true. But that doesn't make either one of them right for you - or more significantly, right at all. Some (most?) agencies are simply paying their producers too much and, in a few instances, exacerbate the situation by offering a percentage interest in the book of business. Some of these same agencies are losing current income on their producers' sales. We actually ran into one agency owner who said that he knew this but accepted it because 'he had to keep his markets happy.' By giving up an exorbitant share of commissions or a portion of the equity, a few agents are actually eating up some of the value which they had previously built up. So what to do?
First, accept the fact that you probably can't afford to match most of the 'opportunities' presented to you. Experience suggests that most 'opportunities' aren't really as good as they are described.
Second, don't believe all that you read. Too many articles today are written by consultants who don't live in the insurance agency arena or who espouse some good theories, but don't explain that the theories don't apply to all readers in the same way.
Third, it's a good environment and capable sales management that builds good producers, not a compensation plan. The purpose of a good compensation plan is to adequately reward each producer in proportion to his/her production success. It is NOT to see that every producer makes a good living regardless of the level of her/his production.
Fourth, the compensation schedule is superfluous if the producer's prospecting targets and sales goals aren't consistent with those of your agency's capabilities and markets. If you don't have enough sufficiently skilled people or adequately competitive markets to support an aggressive, broad-based sales effort, then few if any producers will succeed - regardless of how much they are paid. On the other hand, if you have access to sufficiently competitive markets, then producers will have the opportunity to make more money even though they are earning commissions at lower commission rates.
Fifth, know your financial position, how much you can pay, and the specific duties/functions you are willing to pay for. Everybody agrees with this principle, but in the heat of competition for the next 'hot shot' who comes along, few agencies apply their knowledge. If you expect your producer to simply sell and you expect to develop the quotes, market the account and provide the front line service, then you should pay only for the selling function. You are already paying for the other functions. If you expect your producer to sell, quote, market and service, then you should be willing to pay for all these functions - to the extent that your agency can afford to do so.
What do we see? Unequivocally, the agency which is well managed, profitable and supported by adequate markets is attracting the better producers and doing so at lower average commission rates AND, at the same time, the producer is making more money. The lesson: before going out to attract new producers, study your financials, strengthen your internal management and be sure you know your markets.
|
|
