PRODUCER COMPENSATION: YOU GET WHAT YOU PAY FOR
by Pamela Millard
In spite of the continuing soft market (the permanent soft market?) and the troubling economy, there are opportunities for growth. However, it won’t just happen. To grow your business, you’ll need to be better than you’ve ever been as a business. Better than your competition – and your competition is now bigger and more visible than ever. To be better than the competition, you need a strong, motivated sales force.
Producers are motivated by money. That’s not always true for every producer, and it’s not true all the time for any producer. However, as a basic structural component of sales compensation, it’s a reasonable assumption on which you can base a plan.
There are dozens of ways to structure producer compensation and hundreds of variations on a set of themes. When I work with agencies to design, or improve, their producer compensation program, my first recommendation is: Pay for what you want –and DON’T pay for what you don’t want.
What does this mean? Here are some common examples:
- Paying higher commissions for new business than for renewal will make selling new accounts relatively more important than retaining existing customers. Is this what you want?
- If you pay a level commission rate for all business, then three small accounts will pay the producer as well as one large account. Is this what you want?
In both of those examples, once the producer has reached their desired level of income, they have no desire to keep growing. If the producer doesn’t grow, the agency doesn’t grow. This is definitely not what you want!
For the agency, if you’re not growing, you’re falling behind. For the producer, once you reach your own personal financial goals, “money” is no longer the motivating factor.
So, whatever your compensation strategies, they should support the agency growth strategy. Let’s look at ways to make these two methodologies work to pay for what you want.
- Pay a higher new business commission -- but only on net new business. In other words, the lower commission will apply for new business until the producer exceeds the renewal threshold.
- Pay one level commission for accounts of a certain size and another level commission for accounts below that size. Define “small,” “medium,” and “large” in a way that increases overall revenue per account, because this is a key profitability and productivity driver.
Here’s another approach, use growth as the primary incentive. Pay a level commission for maintaining a book and a higher commission for growing the book.
If you find your agency is paying too much for what you don’t want – or you’re not getting what you pay for – it might be time to look at your producer compensation.
Pamela Millard is president of Transformation Advisors (Diamond Springs, CA), a client-focused management consulting firm. You can contact her at (530) 295-108, e-mail [email protected]; or www.transformationadvisors.com.