Keeping Producers Motivated

As your agency grows, deciding compensation for producers can be a headache. You want to offer a competitive compensation model, but one that makes sense for your agency and meets the expectations and experience of the new agent.

Compensation is the main motivator for positive and productive behaviors and should be thought of independently and with some creativity. While the most known industry standard is 40% New/30% Renewal, each agency is different. Not all producers are created equally, nor should their pay be. As an agency owner, remember that producer split should never eclipse your expense ratio.

Let’s look at some variances to the industry standard so you can be confident in your compensation.

 

Newer or Smaller Agency Offering Less Back-end Support

If your agency is smaller in revenue and unable to offer robust backend support for producers, you may want to offer higher splits up to 60% on new and 40% on renewal business. This accommodates the additional time the producer invests in the sale, servicing of accounts, and other costs they take on like marketing, travel, health insurance, etc.  Be sure you know your operating expense margins and DO NOT offer a commission split that eclipses that amount! 

 

Producer Newly Licensed or Limited Experience

Most experienced producers come with a pipeline in place and are ready to take off running. They will be more comfortable with a commission only structure. For a less experienced producer that is greener in the industry, it benefits you to consider more creative compensation models to make up for the lack of pipeline. Creative models can start with a draw or base salary and lower commission split of 20% on new and 10% on renewal. You can transition their compensation to commission over a period of 2-3 years, giving them the opportunity to acclimate to the industry. Their residual book should build over the years, replacing the original base or draw with a commission split that more closely resembles the industry standard.

 

Looking to Accelerate New Business

If your agency is focused on growth (which we would hope that it is), producers should be more motivated to go after new business and less comfortable just sitting on their renewals. In this case, compensation should be more weighted on new business. While the industry standard is 40% New/30% Renewal, widen the gap between the two splits to place more emphasis on new business. This would look like a split closer to 50% New/25% Renewal or whatever percentage your agency budget allows as long as it is heavier weighted on the new side.

You could also maintain your existing commissions split for new business but tier your renewal splits based on meeting new business goals for the year. Say your new business goal is $400k and the following scenarios occur:

• Tier 1: Requirement: 100% of $400k new business goal met = 35% on renewals
• Tier 2 incentive: Requirement: 50% of $400k new business goal met = 30% on renewals

And producers meeting less than 50% of goal, stay at 25% on renewals. As a good manager, you will work with lower performing producers to increase their sales efficiency or find another fit if need be.

Remember, we want producers invested in retention, but their top priority is bringing in new business for continued growth.  Another potential enticement and driver of new business could be the consideration of offering an additional bonus of up to 5% on their new business commission based on exceeding new business goals set at the beginning of the year.  Structured similarly to a growth kicker on a profit-sharing grid, tier the incentive based on percentage to goal:

• 105% to goal = 1% Bonus
• 110% to goal = 3% Bonus
• 115%+ to goal = 5% Bonus

 

Directing to Profitable Business

Are there profitability or quality concerns in the book that need to be addressed?  What about writing more preferred profitable business? As agency owners, we know that the more profitable your book is with a carrier, the greater contingency opportunity there is for the agency.  Motivate your staff by setting additional parameters around qualifications for compensation!  You could forgo paying compensation for any monoline business and non-standard business or consider setting a revenue threshold for a producer to receive compensation.  Also, consider incentivizing producers with profitable books at the end of the year with an additional bonus based on the agencies’ contingency earnings. 

 

Core Carrier Focus

Contingency income from carriers gives the opportunity for your agency to vastly increase your profit margins by focusing on carriers that offer greater potential contingency.  Grade the carriers in your agency and identify your A carriers as “core carriers” to write most of your business with. Since these carriers offer additional payouts, you can strategically plan to offer a portion of the payout as additional bonuses to your producers or consider tiering new business commissions based on carrier tier:

• A Carriers (Core Carriers): 50% New
• B Carriers: 45% New
• C Carriers: 40% New

This motivates producers to write with your agency’s core carriers and doesn’t affect your bottom line. It’s a win-win!

 

Larger Agency Offering Extensive Back-end Support

As your agency continues to grow and you start developing more back end support for producers (i.e. account manager, CSR, service centers, etc.), you will want to alter your commission structure to either lower split percentages or start implementing revenue and/or retention thresholds for qualifications. 

These thresholds could be based on two things:

• Account revenue – usually $5k-$10k revenue for most larger agencies
• Total book revenue – tiered based on overall book revenue
  • $2m overall revenue = 35% on renewal
  • $1m-$2m = 30% on renewal
  • Under $1m = 25% on renewal

Of course, the best way to increase sales is to not only reward your team but lead by example. Eventually you may step back from making your own sales, but initially a sales-minded culture will inspire your team to follow.

 

Time to Hire

Now that you know compensation variances for producers based on experience and agency goals, your next step is hiring! We usually think of hiring as a simple process. Read a few resumes, make a couple interviews, find the right candidate, and send out the welcome email. Not so fast! Making the wrong decision can cost your company greatly. 

We have steps and resources to help you find the perfect producer.

Our partnership with PeopleSense Consulting offers assessments at a discounted rate to new hires testing their compatibility with the position. They also provide templates for hiring manuals, offer letters, employee evaluation forms, and sample employee handbooks for your agency’s use. Preparing these documents in advance will ensure a smooth and fast hiring process. Remember to always have a non-piracy/solicitation and non-disclosure agreement signed by new hires and provide them with a clear performance model analysis. Our members can find these tools and more on SIAA4U.com under Hiring and Staffing.

Remember, choose the compensation model that works best for your agency and the producer, and be flexible as things change over time. Be sure to check in regularly to assess performance and coach through any issues as much as possible. Finally, celebrate your growth and success as a team!