Managing For Results

MANAGING FOR RESULTS

by Carol Hammes

Virtually all the insurance agencies that consistently experience above-average levels of productivity have two characteristics in common. First, they all have a strategic business action plan with specific goals, objectives, and action items. And second, they have been able to establish and maintain a team of dedicated employees who are capable of and interested in supporting that plan. If it were easy to create this environment, many more agencies would cheerfully be operating with revenues per employee in excess of $100,000 and profit margins above 15%. It takes a lot of management attention and resilience to develop the right combination of ingredients and to continue to balance them successfully over a long period of time.

Unfortunately, there is no established program for an agency to follow that will guarantee positive results. The IIAA Best Practices Studies, The Middleton Letter, and other industry consultant publications provide numerous suggestions and examples of what the more successful agencies are doing. But every firm is unique, and a course of action that made another agency highly successful could very well be disastrous for your organization unless a similar combination of internal and external factors exists. In fact, what worked well for your agency even last year could break down and become ineffective literally overnight. We can tell you what needs to be done, but how you do it will depend on your own set of circumstances. It takes careful planning, constant vigilance, creativity, and no small amount of luck to build and maintain an effective team of motivated and dedicated employees. The positive end results, however, definitely make it worth the effort.

Building a successful agency team revolves around focusing on setting objectives and rewarding the people for accomplishing those goals, both individually and as a group. The management team must operate using a 'results-oriented' approach, making all decisions for hiring a particular employee or establishing a new policy or procedure only after a careful review of the results that you hope to accomplish. Will this course of action give you what you want or is there some better way to achieve that end? Decisions should be made with the big picture in mind, not merely as a response to a temporary crisis situation. A written strategic business plan with sections devoted to personnel and perpetuation planning as well as growth strategies can help you keep this broader perspective. But it is how you use that plan to develop the agency team that will determine your ultimate level of success. Your results will depend upon your ability:

• to hire the right person for the right job
• to compensate people based on their individual performance and the overall success of the agency in accomplishing profit/growth objectives
• to communicate the general agency's goals to the employees and to show them how they each can participate in helping you accomplish them
• to involve the producers and staff personnel in procedural decisions that affect their work environment and their ability to handle functions efficiently
• to stimulate positive motivation through providing personal recognition, professional growth opportunities, education, and other training support

Hiring decisions in independent agencies are often made in response to a crisis. Someone quits unexpectedly or the backlog gets so bad that a mass mutiny or an E&O suit becomes a real concern. While it's often difficult to anticipate when a new employee will be needed, it is possible to develop a plan for dealing with vacancies in a more disciplined and thoughtful manner than simply grabbing the first warm body that you can find. Review current job assignments to identify any functional areas that are either not well covered or that might lend themselves to more or less specialization in the future. Prepare a set of written job descriptions for the current and future positions that include the functions performed and the reporting relationships as well as the educational and experience qualifications required of a person in that position. Draw up an organizational chart to illustrate the relationships between the various job positions and review the written descriptions that have been prepared. Are clerical functions being handled by enough clerical positions? Are technical functions allocated to qualified service personnel rather than producers? Does everyone have a manager or supervisor to whom they can go for problem resolution and from whom they will receive training and performance feedback?

Once you've determined the specific structure and job positions that will best suit the agency for the next several years, define the ideal type of employee for your organization. What general personality traits, skills, age, and experience levels have worked out well in the past? Compare the personality test results of the people who have been successful in your agency with those that have failed to measure up to your expectations. What generalizations can you make that will help you use the test results more effectively in the future to increase your odds of hiring someone who will be successful in your agency environment?

Keeping in mind both the personality profile and the qualifications for the various positions in the agency, identify and cultivate sources for prospective employees. Even if you are not currently planning on hiring a new employee, you will need to do so sooner or later. If you have a list of prospects from which to draw when the occasion arises, much of the crisis element in the hiring process can be eliminated. It is also important to make sure that the prospective employees understand the agency's objectives and what will be expected of them if they join the team. Put together an employment information package on the agency that can be provided to future prospects. This package should include all sales brochures, resumes of key people, history of the agency/management philosophy, major insurance companies, and general information on employee benefits and procedures. Agency employees today are much more concerned about the working environment, available markets, co-workers, etc. than they used to be. Give them the basics on your situation so that they can evaluate you while you're evaluating them. The employment situation should be a partnership by which both sides can fulfill their needs.

The results of The Middleton Letter's Agency Compensation Survey showed that most agencies pay their producers based on individual production results. While some still pay a level commission percentage for new and renewal business and the same percentage for personal and commercial lines, the trend is definitely moving toward structuring programs that direct the producers to bring in new accounts that are of the type and size most profitable for the agency to handle. The following is an example of such a commission schedule, with property-casualty and group health accounts having the same commission percentages. In some agencies, it might be appropriate to establish slightly different percentages for the group business because the producers may have to handle more or less of the routine servicing functions. The definition of small commercial and large commercial accounts will depend upon the agency's location and sales orientation.

A corollary to this type of program is to offer additional compensation if the producer achieves certain goals. For example, if the producer has more than $300,000 in total commissions he or she could: get a bonus equal to 50% of the commissions in excess of that threshold in addition to the regular commission schedule; get an increase in the monthly car allowance; or be paid a higher commission percentage for all new business written that year. There are hundreds of possible bonus formulas that can be used to encourage salespeople to perform at higher levels. Our suggestion is that you try to keep it relatively simple or you'll end up with an administrative nightmare that creates more frustration than positive results.

Employees that are in a service capacity in the agency may also have some sales responsibilities as part of their jobs. In the survey, 44% of rural agencies and 55% of the suburban/urban agencies pay personal lines CSRs either a policy fee or commissions for selling new or expanded business in addition to their base salary. A number of agencies are beginning to take a different approach to CSR compensation, basing the salary for the year on the size of the book of business handled the past year. This type of plan rewards the CSR for high retention rates as well as new sales activities. The percentage of commissions paid as a salary generally ranges from 20% to 23% depending upon the amount of clerical and automated support that the agency provides to the CSR.

For jobs in which there's little or no opportunity to sell or where the servicing aspects largely outweigh the sales functions, it's more difficult to tie compensation directly to the quantity of business handled. In these cases, it's often necessary to rely primarily upon the performance evaluation system to determine what percentage of a raise or bonus the person should receive. If the agency grew 3% last year and the budgeted average raise for the next year is 3%, those employees who are above average might get 4% and those that are below average might get 2%.

If everyone's base salary is already appropriate for his or her level of performance, calculating a raise or bonus upon that base will generally give you the results you want-that is, rewarding people for their performance this year. But in most agencies, past compensation practices have resulted in the people who have been there the longest being the ones who have the highest base salaries. Calculating a raise or bonus on that base may not be fair to lower-paid people who have out-performed the others this year but who will get less of an increase because of the lower base.

By instituting a performance point system of calculating raises or bonuses, you can eliminate the negative effects of calculating increases as a percentage of the base salary and also directly tie the amount of the increase to the agency's total results as well as to the individual employee's performance. Such an incentive plan might be based upon agency profit, growth, revenues, increase in revenues per employee, contingents received, or any combination of these, as long as it's relatively simple to calculate and understand. Announce the formula for creating the bonus pool at the beginning of the year, making sure that you have carefully tested this formula against probable results. Structure the performance evaluation system so that employees receive points for things such as quantity and quality of work handled, attendance, attitude, achievement of educational goals, etc. Once the bonus pool is created at the end of the year, convert the performance points into dollar equivalents to determine the individual bonuses to be paid.

Another way to reward employees for good agency performance is to contribute to retirement or equity programs. Matching contributions to 401(k) plans are the most common approach now, but with the SIMPLE plan that was passed into law in 1996, many agency owners may find it advantageous to create such a vehicle for sharing agency profits. Key employees can be rewarded with deferred compensation programs based on vesting in commissions, department growth, or profit results. Actual agency ownership can be made available, or phantom/shadow stock might be used as a reward.

Every member of the agency team has to know not only the general goals for the year but also what he or she can individually do to help you achieve them. It's not enough to have a meeting at the beginning of the year to outline the objectives and the incentive program. Every employee (including producers) must meet with a manager or supervisor at the beginning of the year to go over individual performance objectives and develop a plan of action for accomplishing them. Frequent follow-up meetings (at least once a quarter) should focus on the positive progress as well as the problems or setbacks that have occurred. Impromptu communication must be on-going, both for individuals and the employee group as a whole. Share as much as you possibly can as often as you can.

The people performing sales and service functions in the agency must be given the opportunity to provide concrete input on how these transactions should be handled, and by whom. Procedures that are determined solely by agency principals, managers, or the computer vendor are often inefficient, creating extra work and morale problems. To develop a positive interactive spirit, it's essential that management personnel clearly and openly recognize the positive contributions that can be made by every person in the agency. Team building must be a democratic process.

Create a committee to establish and maintain procedures that consists of one service person from each department and at least one producer. Other employees should be instructed to give suggestions to the committee member as situations arise. Meetings should initially be held as frequently as is necessary to get the procedures identified and put into written form. Maintenance meetings only need to be scheduled once a quarter or on an 'as needed' basis. Any time a major change is made in the automated systems or another agency is purchased, a complete review should be made of all procedures. And if the agency is growing in excess of 10% a year, I recommend that a formal grassroots re-evaluation of procedures be conducted at least every two years.

Perhaps the most elusive part of the team-building process is the creation of an environment in which the employees are motivated to help you accomplish the group goals. Hiring the right type of people, compensating them based on their performance, keeping open lines of communication, and involving them in the decision-making process will help set the stage for a high level of positive motivation. But unless you can meet some of the other non-monetary needs of the employees, you may find that they are not motivated to go the extra mile.

Smaller agencies often tend to have good team spirit just by virtue of the fact that there are only a few people involved and they can interact closely with each other. Once there are more than 10 or 12 employees, personnel management becomes a much more important function, and agency managers must spend a significant amount of time to reassure the employees that they are all working toward the same end and that they will all share appropriately in the rewards. Set aside time to have short agency and department meetings every month to discuss specific topics and to bring up communication problems or concerns. Take employees' concerns seriously and respond either by fixing what is bothering them or by explaining why something cannot be done about it. Buy lunch or throw a party when a new large account is written, when monthly goals are achieved, or when everyone has pitched in to reduce a temporary backlog situation.

If you've decided that your ideal employee is a person who sees the insurance business as a career rather than a job, then you have to be prepared to provide room for them to grow. In a small agency, it may be difficult to show people much of a career path but it can be done. You can easily have four or five different CSR job position levels available, even if you only have one CSR. As more experience and education is attained, the CSR can be promoted to the next level. Eventually there might be the possibility of a corporate title, a private office, or some other external indication of professional success. At the very least you must provide educational opportunities for this type of employee, with the agency paying for job-related course work, meeting licensing and continuing ed requirements, and working toward professional designations.

Another thing that most people seem to crave is personal recognition. There are many different things that agency principals and managers can do to provide positive recognition and reinforcement. Simple things such as 'employee of the month' status or even just a 'thank you' will often go much further than a bonus to raise an employee's morale. Put announcements on the bulletin board or E-mail when someone does something special. Prepare a press release to celebrate educational achievements. Provide incentive programs that award a dinner out, a day off, or a trip to the state agent's convention for individuals, teams, or departments that are exceeding their goals.

The secret to giving successful positive feedback lies not so much in what you do but in how often you do it. The mutual respect and good vibrations that come from positive personal and professional contacts between principals, managers, and employees can and will make the difference between lackluster and exceptional individual and agency performance.