If You Want The Sweetest Music, You Need To Pay The Piper

'You get what you pay for.' Can we assume that this is always the case? Al Diamond looks into whether compensation affects performance, and offers statistics against which you can measure your company’s bang for the buck.

We’ve just returned from performing an analysis in an agency with profit problems. Although they were spending less than the average agency in personnel costs, they were far less efficient and productive than they should’ve been for their size and mix of business. The agency paid approximately 15% less than the average compensation in the area for insurance personnel, but the result was productivity rates 25%-40% below the Composite Group of similar sized agencies (see our Fall Composite Group issue of the Pipeline). The result: constant backlogs (further eroding service) and the need to overstaff compared with agencies performing similar functions.

It’s easy to reiterate the obvious. Pay for the best and you can expect the best performance. Pay mediocre wages and you’ll probably get mediocre performance. However, fair compensation alone (or the lack of it) doesn’t appear to be the only performance motivator in an agency.

We’ve seen agencies that pay relatively high wages and don’t get the desired results due to lack of management and/or communications. Management refers to supervising and relating performance expectations to your employees, and monitoring their performance to assure adherence to agency policies. Communications involves talking to employees, praising strong performance, and criticizing (and correcting) weak performance.

We also know agencies that don’t pay competitive wages but have such even-handed and supportive management that employees remain even though they can make more money elsewhere. This proves that although money is a key motivator, it’s neither the only nor the most important way to keep employees.

Despite these notable exceptions — and assuming good management — most agencies that pay salaries below that of their competitors attract lower qualified and lower motivated employees. These employees reflect their attitudes to clients and carriers as the attitude of the agency. So, when you review compensation of new (or existing) employees, ask yourself, 'Am I proud of the way this person reacts with clients and carriers on my behalf?'

Take a look at these statistics. They reflect the average productivity (revenue per employee) and percentage of revenue for administrative employee costs of agencies in the four Composite Group categories measured by Agency Consulting Group, Inc. Measure your productivity and percentage of income and ask yourself if your employees’ performance is equivalent to your position on the compensation scale.