Employee Compensation 1

EMPLOYEE COMPENSATION

At first glance, there seems to be no great secret to employee compensation. We all work to be paid. Pay your people well, and they'll work hard for the agency and stay with you as you grow.

But you've managed people, and you know it's not that easy. The compensation must be fair and adequate, must be directly related to the task you want performed, and must allow the agency to profit while tying key employees in to agency growth.

Because every agency is different, we're providing different options.

You'll find two sections-'CSR Compensation' and 'Producer Compensation.' The former should answer your questions regarding base salary and financial and non-financial incentives you may offer your CSRs to generate X-dates and cross-sales. The latter presents formulas that will help you determine how to motivate your producers while still generating enough agency profit, and outlines your options regarding equity ownership and producer contracts.

We know that properly compensating your staff is not as easy as it sounds. This will help you sort out your choices and design a plan that works for you.

You've hired a new Customer Service Representative (CSR) . He or she may not have technical insurance knowledge-it really doesn't matter. Either way, your new CSR is a person you feel can contribute to the overall success of your agency. The key to all your Customer Service Representatives' success, and your profitability, is to motivate them to provide your products and services to the consumers in your community.

An agency's Customer Service staff handles a variety of tasks. Here we'll try to clarify a few positions and accompanying duties. Then we'll discuss some of the financial benefits you may wish to offer your CSRs for performing certain types of duties.

Customer Service Representatives-also known as Account Executives, Account Representatives, and Customer Service Agents-are the communications link between your insurance company personnel and your Personal and Commercial Lines clients. This contact may be through the mail, over the telephone, and in face-to-face visits either in the agency or at the insured location.

CSRs become involved in client and company 'demand contacts' when the producers are not available-one would hope that is at least 80% of the working day- Demand contacts are the questions you receive regarding billings, endorsements, claims, and anything else you handle after the client purchases your products.

To perform these duties properly requires proper training, education, evaluation, and compensation. With these, your CSRs can become your most productive partners in account development. And the employee who is fairly and adequately compensated will remain a loyal and productive member of your agency team for a long time.

There are four types of rewards you can use to compensate and motivate your CSRs:

Financial rewards: These are the dollars and cents you pay directly for a job well done.

Professional rewards: An investment in your agency's future, these types of rewards allow your employees to take advantage of an immediate benefit that gratifies their present ambitions. The agency's return comes through the stability of a well-balanced support team.

Emotional rewards: These contribute to the positive mental attitudes that will keep the agency staff working together productively toward a common goal of comfort and enjoyment.

Security rewards: These allow you to maintain a stable work group, which ultimately increases profit as you minimize recruitment, training, and development costs.

FINANCIAL REWARDS-BASE SALARY

Customer Support Representatives should be oriented to think, plan, and develop on an annual basis- The base salary structure that is most helpful in accomplishing this is based on a 40-hour work week, 52 weeks each year. So often it's found that when people discuss their pay in hourly or weekly figures, that's about as far ahead as they will plan- Annualizing your salary amounts helps your CSRs to begin thinking in terms of what they can do next year, in two years, in five years, and so on.

In other sections of this disc, you'll find some suggested salary ranges for Personal and Commercial Lines CSRs and CSR Managers. But, keeping in mind the regional variances in salaries and the differences between each agency, you may also want to contact the following for guidance:

• Any local company office's personnel division
• Your Chamber of Commerce
• Association offices
• Local competitors with whom you're acquainted

Additional information and analysis of each profit center (Personal Lines, Regular Commercial Lines, Exceptional Commercial Lines, Life and Health, and so on) helps tie productivity to profitability. Following is an example of such an analysis.

Since the salary expenses are higher than the basic budget allows, an option would be to offset that total salary entry with Sales Expense, by offering a financial incentive for production. (Stop and think: Where are you spending those sales dollars now . . . subsidizing staff salaries? Doing it all yourself?)

You must continually review and update your salary program to ensure that salaries are commensurate with the responsibilities of the position, the performance of the individual, the cost of living, and industry averages.

Very generally speaking, a Personal Lines Customer Service Representative's annual salary ranges between $13,000 and $25,000; a Commercial Lines Customer Service Representative's salary is between $15,000 and $60,000. Keep in mind that these are base figures-there are many additional options for compensation based on initiative, growth, and account development procedures your CSRs can utilize.

The main purpose of employing a CSR is to maintain the flow of timely information from your clients to companies and back. In some cases, this process will include the producer, and in other cases it won't. Therefore, your CSRs must be available during your customer service hours as the conduit for insurance updates. The annual base salary will compensate your CSRs for this work-in effect ensuring that the CSR is in the agency during required business hours.

Your agency is compensated by the companies you represent on a commission basis, usually with some added incentive for profitable and balanced production. CSRs whose rewards are calculated on a similar basis will be much more conscious of assisting you with the maintenance of a stable income and profit flow.

Following are some methods you may use to figure additional benefits:

Sub-producer codes for each licensed individual can be established through your insurance carriers or through your own automated accounting system. In most states, you can only legally pay commissions to a licensed broker, solicitor, or agent. In other cases, those without a license may choose to leave the insurance business, or may not be dedicated to responsibly caring for clients' needs. For these reasons, only licensed individuals should receive sub-producer codes.

To assign sub-producer codes through your carriers, you must discuss with your marketing representative or branch manager the possibility of their providing you with separate producer statements. Keep in mind that, by using your companies' abilities for sorting production, you also may incur additional in-house bookkeeping duties. For example, you may wish to verify multiple, individual statements from your carriers each month. You also need to be aware that company-issued sub-producer codes will be printed on your clients' policy declarations. You could unintentionally wind up with a 'partner'-keep this situation in mind.

By assigning sub-producer codes on your internal automated system, you and your bookkeeper maintain control of production statements and policy coding. Recording this production can be accomplished in one of two ways. First, assign an internal two-, three-, or four-digit code to each individual. When a policy is written through the particular individual's efforts, the application is still coded to your agency's company producer code. The sub-producer should then complete a manual record or system entry of the production. Your bookkeeper can make any necessary adjustment report entries at the end of each month for each sub-code. The total adjustment report entries must be debited and credited in the same month if your intent is to pay commission on the first premium period. When your month-end reports are printed, a summary of business produced by each individual can be printed for management review and payment to the CSR.

EXAMPLE #l:

Susan writes an Auto policy with a semiannual premium of $300.00. Her system entry in a production report format would indicate:

[COMPANY NAME]/Policy [NUMBER]/Premium: $300.00

Policy Period: MO/DA/YR to MO/DA/YR/Commission: 15% or $45.00

Your bookkeeper enters a credit to code #200, then additional entries of a credit for $22.50 to code #201 and $22.50 to code #200.

Susan's production entry is completed on a 'mock' adjustment report log, or a form designed to transmit the same basic data to your bookkeeper.

The bookkeeper will deposit the entire commission amount into the agency's trust account with a general ledger entry to the applicable Personal Lines policy-type ledger. The adjustment report entry would indicate '0' premium and '0' commission to the agency (as you already received the entire commission in your trust account deposit). Then, a credit entry is posted for the applicable commission amount (50% in this case) to Susan's 'sub-code' account #201. The balance automatically remains in the agency's account.

Notes: You must require a complete 'Expiration Date Control' form for verification. Included at the end of this section is a sample 'Expiration Date Control' form. This form must be completed by any non-licensed individual for payment of a finder's fee.

Non-licensed personnel who may take advantage of this particular type of financial compensation include but are not limited to: receptionist, bookkeeper, administrative assistant, typist, or word processing operator.

The aforementioned form is your Sales Center Coordinator' s second most important tool-only the telephone is more crucial to your Sales Center operation. Properly completed, and filed along with all expiration copies of your agency's invoices, these 'Expiration Date Control' forms give you a tangible tool for an accurately timed follow-up on a prospect.

If you require your CSR to follow up on any of these completed 'Expiration Date Control', you should incorporate one or two into their daily mail. This is a more manageable approach than distributing one week's or one month's expiration dates at a time.

In light of the Tax Reform Act of 1986, it may not be as easy for your employees to fund their own Individual Retirement Accounts. Under the new law, a married individual may contribute and deduct up to $2,000 per earner to an IRA, as long as neither spouse is an active participant in an employer-maintained retirement plan. So if the spouses are currently participating in their employers' plans, your married employees now may have a problem. Many single employees face a similar problem, in that they may be the 'head of household' and not have the after-tax dollars it takes to invest in their own retirement plans.

You can motivate your CSRs through the proper administration of a profit-sharing or pension plan. We suggest you discuss your options with your Certified Public Accountant to develop an approach that is appropriate for your agency and your staff.

Company A has just delivered a bonus check to your agency for $2,000. You have five employees who have helped you earn this profitability bonus. You may decide to share the total company bonus amount or just a portion of it.

For example, if your staff salary plus benefits amounts to 21% of your total agency expenses, you might choose to share 21% of the bonus with your staff--21% of $2,000 is $420, or $84 per employee.

Or you may choose to pay your employees proportionately. This would be calculated follows:

• Employee A earns $8,600 annually
• Employee B earns $13,000 annually
• Employee C earns $15,000 annually
• Employee D earns $20,000 annually
• Employee E earns $21,000 annually
• TOTAL: $77,600

Divide the individual salary amount by your total salary of $77,600 for a representative percentage of total salary. Then multiply this amount by the bonus amount of $420, and you'll arrive at each individual's share of the bonus.

• $ 8,600/$77,600 = .11* x $420 = $46.54
• $13,000/$77,600 = .16* x $420 = $70.37
• $15,000/$77,600 = .19* x $420 = $81.19
• $20,000/$77,600 = .25* x $420 = $108.24
• $21,000/$77,600 = .27* x $420 = $113.66

Let's say your management goal for the coming year is to earn 20% profit in each profit center. Supposing a sample Personal Lines division that represents about 40% of the total agency expenses of $200,000, or $80,000, you'd need to produce $96,000 of income or roughly $650,000 in written premiums (at an average of 15%) to reach your goal.

Presently, you've got close to $500,000 of Personal Auto, Homeowners, and 'miscellaneous' business on the books. To increase the volume to $650,000, an additional $3,000 in NET premium must be produced each week. (To establish goals for your staff, use numbers they'll understand. In this case, only $1,500 in written premium for each of two CSRs in that division will fulfill this goal.)