AGENCY COMPENSATION SURVEY
by Carol Hammes
Doing what you’ve always done in terms of raises and bonuses might not be giving you the 'bang for the buck' that it used to. This document by Carol Hammes tells you how to improve employee loyalty in ways that are fair to everyone.
The average independent agency spends between 62.2% and 66.3% of revenues on compensation. Because this is your firm’s largest single expense, it’s essential to make sure that you’re spending it wisely.
Although the bloom on the dot-com rose has faded, plenty of firms can still afford to offer salaries far higher than the average independent agency can afford. As a result, agency principals must be prepared to sell prospective and existing employees on the benefits of working for their organization. This means you have to offer something beyond monetary compensation. In general, people don’t take a job just for the money, nor do they leave one solely for a higher salary. An entire package of items and emotions goes into these decisions. The key is for management to determine the needs of the individual prospect or employee and then try to meet them.
This is easier said than done when dealing with younger people who might have needs and values that seems alien to anyone over 40. But it’s not impossible. Over and above a decent living, the needs of today’s workers include: a sense of fairness, room to grow, the trust and respect of management, professionalism in the environment and reputation of the agency, and an opportunity to participate in decisions. Most importantly, employees want to know that what they’re doing is making a difference. They want to be rewarded both for the agency’s performance and for their own performance. They don’t want to be treated like every other employee, especially those who are simply coasting and who have 'retired on the job.' This situation is insulting to good performers and counterproductive for the entire organization.
To avoid the morale problems and higher turnover caused by long term but less productive employees, you should establish a performance-based compensation plan that ties in with meeting your employees’ other needs. In addition to those listed above, these might include flexible working hours, job-sharing, switching from sick days to personal time off, an exercise room, a choice of employee benefits/cafeteria style programs, and so forth. A compensation system with salary ranges, bonuses, and commissions that remain competitive while reflecting each employee’s functions and level of responsibility will complement the total employment package that you offer.
The compensation system should provide written job descriptions that include the responsibilities, functions, education, and experience required for the position. Link salary ranges and bonuses programs to the job position and the individual’s eventual performance level. Because automation enhancements or organizational restructuring might change job responsibilities over time, review all job descriptions and salary ranges each year. Although most agencies raise salaries about 4% a year, location and agency performance might affect that percentage.
For 17 years, we’ve been conducting national Compensation Surveys to give agency managers an idea of what other firms are paying for comparable positions. Managers can compare this information with local salary levels to facilitate the annual review process. Web sites that provide data on local salary ranges for comparable jobs include www.jobsmart.org, www.wageweb.com, and www.bls.gov/ncs/ocs/compub.htm.
This article includes The Middleton Letter survey results for 2000, divided into rural and suburban/urban agency groups. These results represent averages, not medians, from throughout the nation. Aside from top management positions, agency size has very little bearing on the results because smaller agencies in a marketing area have to offer salaries competitive with the larger ones. In reviewing the survey results, be sure to take into account adjustments for nontraditional job descriptions, as well the fact that job positions in insurance agencies aren’t standardized. What a Customer Service Rep does in one agency might be entirely different in another, ranging from strictly clerical work to that of a highly educated professional.
According to Department of Labor salary data, a number of states have average per capita incomes significantly higher or lower than the norm. This table will help you adjust the national results to fit your marketing area. States not shown on the chart have per capita incomes within 5% on either side of the median.
| +20% | CT DC MA NJ NY |
| +10% | CA DE IL MD NH NV |
| -10% | AZ IA IN ME NC NE SD TN TX VT WY |
| -20% | AL AR ID KY LA MS MT ND NM OK SC UT WV |
GENERAL AGENCY COMPENSATION INFORMATION
The average rural agency responding to the survey had $577,194 in total revenues generated by 7.2 employees, including the owners. Urban agencies averaged $1,654,126 in revenue, with a head count of 16.6. Revenue per employee came to $80,166 in rural agencies, up 11.1% from the 1998 level of $72,061. In metropolitan firms, revenue per employee rose from $96,168 to $99,646 over the past two years, an increase of only 4%. There were 1.8 agency principals in the rural firms and 2.1 in the urban firms. In the group as a whole, 14.7% were managers, 27.3% handled sales functions, and 58% provided service and support.
The rural firms reported a pretax profit of 11.5% compared with 7.0% in 1998, with the owners taking out another 23.9% in W-2 income. This puts the ownership return ratio at 35.4% of revenues, down from two years ago when it came to 36.4% of revenues. Urban owners had an average profit margin of 11.2%, compensation of 22.8%, and a return ratio at 34% of revenues, up from the 32.9% recorded in 1998. Non-owner producers were paid 14.4% of total revenues in rural agencies and 15.0% of revenues in metropolitan firms. Nonowner managers and staff received 19.6% to 21.9% of total revenues.
The average wage increase for agency employees in 2000 came to 5.1% for rural firms and 4.5% for urban firms. Both figures rose above the levels of two years ago and the increases reported over the past several years. More than half of the agencies have incentive plans that reward employees based on agency results. In both rural and urban locations, agency profitability is the most popular criterion for determining incentive payments. Many urban agencies also use revenue growth and increased productivity to allocate the bonus pool. A number of rural agencies also use the traditional and relatively straightforward method of rewarding their employees.
Most agencies (80% of the rural and 92% of the suburban/urban firms) provide Group Health insurance for their employees. Nearly 90% of the agencies paid employee Health premiums, while 31% picked up the tab for the dependents of their employees. Among rural agencies, 70% have some sort of retirement plan (up from 60% two years ago) with more than half providing IRA/Keogh/SEP programs. Only 12% of these firms offered qualified profit-sharing plans. In contrast, 92% of urban agencies have retirement programs, with 50% of them choosing the 401(k) option. Another 21% of metropolitan firms offer profit sharing plans and 17% make IRA/Keogh/SEP programs available for their employees.
SERVICE STAFF COMPENSATION
These charts show average salary ranges for the major service positions in insurance agencies as they enter 2001. All of the ranges have increased slightly over the past several years, although not at the rates we were seeing in the early 1990s when many agencies redefined their CSR job description from clerical to professional. Salaries for Personal Lines and Employee Benefits CSRs have grown faster than those of Commercial Lines service staff over the past two years. In fact, Commercial Lines CSR salaries in rural agencies have remained almost stagnant.
2000 Rural Agency Service Rep Salary Ranges
| Position | Salary Range |
| Personal CSR – 2+ years | $21,329 - $25,220 |
| Personal CSR - Under 2 years | $17,726 - $19,358 |
| Commercial CSR - 7+ years | $27,919 - $32,431 |
| Commercial CSR - 2 to 7 yrs | $20,791 - $23,518 |
| Commercial CSR - Under 2 yrs | $18,686 - $20,686 |
| Employee Benefits CSR | $22,450 - $30,250 |
2000 Urban Agency Service Rep Salary Ranges
| Position | Salary Range |
| Personal CSR – 2+ years | $25,848 - $32,676 |
| Personal CSR - Under 2 years | $20,304 - $22,039 |
| Commercial CSR - 7+ years | $33,877 - $41,082 |
| Commercial CSR - 2 to 7 yrs | $28,956 - $31,388 |
| Commercial CSR - Under 2 yrs | $22,642 - $26,001 |
| Employee Benefits CSR | $27,358 - $32,449 |
You’ll need to adjust these national for regional variations. In a metropolitan Illinois area, for example, apply the +10% factor shown above to the national salary range. For an experienced Commercial Lines CSR, the computations to adjust the salary range would be: 1.10 x $33,877 - $41,082 = $37,265 - $45,190.
A number of firms use the size of the book of business handled to determine Personal Lines CSR salaries. For example, a CSR handling $125,000 in commissions might get a salary of 20% of that book, or $25,000. If they were to increase the book to $130,000 during the year through expansion and new business production, their salary for the next year would be $26,000. In many agencies, Personal Lines CSRs also receive additional compensation for selling new business and expanding existing accounts. Nearly half (49%) of rural firms offer incentives that range from an average of $10 per policy to 40% of first year commissions and 5% on renewal. More than half of urban agencies (57%) have such programs, paying either an average of $20 per policy or 35% of new commissions, and 6% on renewal. Most of these incentives have risen during the past two years.
SALES COMPENSATION
Producers in rural agencies still tend to have a lower correlation between performance and compensation than do their urban counterparts. Almost one-third of them receive a straight salary, compared with only 12% in urban agencies. Where there’s a connection between sales and compensation, salary is usually based on a percentage of the previous year’s production. Among rural producers, 38% get commissions or production bonuses in addition to salaries, while 31% of metropolitan salespeople receive a salary plus incentive compensation.
Location seems to make a big difference in who gets either straight commissions or a salary as a draw against commissions. Only 30% of rural producers have such a plan, compared with 57% of urban sales people. For producers paid on a commission basis, these charts show average rates paid. Note that these are nationwide averages, not 'recommended' sales compensation percentages. They might well be too high for most firms if there’s little house business and/or the owners expect the agency to produce a reasonable profit. Some agencies provide little or no back-up support to producers, while others have technically proficient CSRs, along with sales centers and marketing assistance. Take these extra support expenses into account when analyzing sales compensation.
Rural Agencies
| Personal Lines | New 49%/Renewal 23% |
| Small Commercial | New 48%/Renewal 24% |
| Regular Commercial | New 44%/Renewal 23% |
| Group | New 42%/Renewal 26% |
| Life | New 50%/Renewal 19% |
| Handling Other’s Accts | NA |
Suburban/Urban Agencies
| Personal Lines | New 42%/Renewal 25% |
| Small Commercial | New 45%/Renewal 29% |
| Regular Commercial | New 43%/Renewal 33% |
| Group | New 46%/Renewal 38% |
| Life | New 56%/Renewal 16%&
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