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Eight Steps To Hiring A Producer
EIGHT STEPS TO HIRING A PRODUCER by John Jaques Use this proven system to recruit, screen, and monitor star producers. Adding a new producer often results in failure for both the agency and the employee because there was no formal program for attracting, hiring, training, managing, and retaining producers. If you’re planning to hire a new producer, it’s essential to determine why you need to fill the position, define personality traits you’re seeking, decide how much you can afford to pay, and design the selection process to find the ideal candidate. This involves eight steps: STEP 1: DETERMINE IF YOU NEED A PRODUCER OR ACCOUNT EXECUTIVE Start by making sure that you need a new producer in the first place. Hiring an account executive instead might meet your needs just as well, with less expense and risk. Here’s the difference between the two positions: Producer: Originates and sells new accounts while working on their own renewals. Account Executive: Instead of producing new business, renews and services house accounts and accounts passed to them from other producers (and owners). A producer’s primary function is to originate and retain new business. On small Commercial and Personal Lines accounts the CSR should handle all issues and renewals. Medium-size Commercial accounts (more than $10,000 annual premium) and large, complex accounts should be serviced, renewed and remarketed by a producer or account executive. Your agency probably won’t require a new producer if: Your total book of business is less than $400,000 to $500,000 in annual gross Commercial Lines commission. An agency of this size usually lacks the resources to compensate and support a new producer adequately and still generate a profit for the owner(s). The average individual producer (or owner) has a book of business less than the $400,000 to $500,000 gross annual commission threshold. Producers need to meet or exceed this threshold to allow the agency to make a profit and validate their compensation and associated sales expenses. Once your producers exceed these thresholds, you should consider adding another producer. If the agency owners have individually developed large books of business and the time devoted to servicing becomes burdensome (especially combined with the time they devote to management ), adding an account executive to service the owners’ books of business might be better than adding service. Turning over account producer-service responsibilities to an account executive allows the principals to focus on producing new business. STEP 2: DETERMINE THE CHARACTERISTICS DESIRED IN A PRODUCER Minimum characteristics should include a high ego drive, the desire to be financially successful, a high degree of empathy, good communication skills, and comfort when dealing with new people. Also consider whether you want an experienced producer who can bring in an existing book of business, or raw talent possessing strong sales skills and/or technical insurance knowledge. Base this decision partly on the resources available to compensate the producer (see Step 3) and the amount of time and effort the agency is willing (or able) to invest in helping them succeed. STEP 3: DECIDE HOW MUCH YOU CAN AFFORD TO PAY A PRODUCER Based on a 15% to 20% pretax profit margin, the average agency should determine producer compensation using this method Calculate agency income, target profit, and expenses. If the results differ significantly from the industry standard, review the expenses that differ, find out why, and develop action plans for correction. If the balance of commission dollars available to pay the new producer is substantially less than 26.5%, address and correct the income/expense and profitability issues before hiring a new producer. There can be as many variations of new producer compensation plans as there are agencies. A successful compensation plan must achieve three goals: Earn a profit for the agency Generate revenue growth Attract and retain quality producers The most important goal is to earn a profit. In many cases, producer relationships fail simply because the owner ignored this goal. This often happens when an owner tries to match a competitor’s offer of a 50% commission split to the new producer. If the principal overpays, the producer has incentive to underachieve (by amassing a comfortable income too quickly), and the relationship dies within several years because the principal is unhappy with the arrangement. An owner maintains a business to generate a profit while, building the sales value of the asset (business). To achieve these goals, a producer compensation plan must have a built-in profit. Overpaying a producer by rationalizing that the agency value will increase because of added commission volume is incorrect, because agency value is based on profit, not commission. If producers are overpaid and profits are low, agency value will be reduced as well. The average agency can afford to pay approximately 26.5% of commission dollar to the producer. However, if producers pay their own automobile, travel, and client- promotion expense, they can receive an additional 3% to 5% This means the agency should be paying its producers 30% of commission on renewals in order to generate a fair profit. Based on this analysis, I’d recommend this new producer compensation structure: Annual Base Salary: Set a minimum annual salary for the first two to three years the producer is employed. This would be income committed to the producer and viewed as an investment; the producer will be paid the higher of the minimum salary or the commission split, as shown below. As a standard commission split, the annual salary each Jan. 1 should be set at 30% of the prior year’s total gross P/C commission on accounts originally produced by the producer. These will be “type A” accounts. (If the 30% base salary application is less than the producer’s current salary, continue to freeze the producer’s salary for one year at its present level and validate it in the coming year.) Add to this 20% of the prior year’s gross commission on house accounts assigned to the new producer by the agency. These will be “type B” accounts. These accounts can be accounts that owners and high-volume producers can pass to the new producer. New Business Bonus: During each calendar quarter pay the producer a 40% bonus on all new account P/C commissions paid to the agency on new accounts that they write. Growth Target Bonus: Give the new producer an annual new commission growth target, such as $25,000 gross commission in the first year, $35,000 in the second, and $45,000 in the third year. If the producer reaches the target, pay them an additional 10% bonus on all new commissions. Automobile and Client Promotion: Producers will be responsible for paying their own automobile and client-related expenses out of their commission split. This allows them to write off the expenses on their personal taxes and eliminates the agency’s costs of accounting for these expenses. Education Expenses: The agency will pay all education costs and travel costs related to education, with prior approval. STEP 4: START THE SEARCH PROCESS By now, you’ve established your need for a producer, the type of person desired, and the size of the agency’s investment. Other than having an employment search firm do the recruiting for you, where can you find candidates? Sources include: Marketing representatives, underwriters, and claim representatives from carriers Producers at other agencies Producers/account executives at public brokers Proven salespeople in other fields or industries Graduating college seniors with a marketing degree From these resources, construct a hit list of five to 15 potential candidates to interview. STEP 5: I INTERVIEW AND TEST THE CANDIDATES Interview and test every candidate on your hit list. Use the first meeting to ask background, qualifications, skills, and experience questions. Determine if the candidate possesses the personality traits desirable in a producer. At the end of the interview, have the candidate complete a personality profile test. These tests usually are administered by outside psychological-testing firms and can be valuable in identifying personality traits, levels of energy, and work conduct. They also can contribute to your judgment factors relative to the chances for success or failure of the producer candidate. Although you shouldn’t use these tests as the sole criteria for any hiring decision, they can help you identify the aptitudes needed for producer sales success. To get a better overall judgment on the candidates have more than one agency owner/manager interview the candidates To obtain a better understanding of the candidates’ business experience and qualifications, ask them these questions: What have been your three best or biggest business successes? Describe your three worst or most disappointing business experiences. How would you change the circumstances should your worst experiences occur again? Who was your best boss or supervisor? What were the characteristics and business practices that earned your regard? Who was your worst boss or supervisor? What earned that individual this dubious honor? These questions can help you gauge the candidate’s expectations, whether the agency’s management style will be a fit, and provide insight into the individual’s perspective on their success and failure experiences. STEP 6: DO A REALITY CHECK Once you’ve pared down the list to two or three candidates, meet with each of them two or three more times, under these circumstances: First, the meeting should occur away from the agency premises in a social setting atmosphere, such as attending a ball game, playing golf, going to dinner, etc. Have another meeting in a business setting — calling on a prospect, a renewal visit, or a service call. After the meeting, debrief the candidate; ask how they felt the meeting went, what could have been done differently, and what they would do as a follow-up or try to accomplish during the next client meeting. Use these meetings to obtain a better picture of the candidate’s personality, experience, reactions, and behavior in social and business situations. These are important factors, since the producer will be representing the agency in both positive and negative social and business settings. While your investment in time and effort might seem considerable, bear in mind that it’s essential to select the right person. The cost of replacing an underachieving producer is high (both in dollars and time). STEP 7: CHOOSE THE RIGHT CANDIDATE By this stage, you should have a good feel for which candidate best suits the agency’s needs and has the aptitude and profile for success. When making the final selection, keep in mind the budget constraints in setting the new producer’s compensation. If the ideal candidate is beyond the agency’s current financial reach, don’t feel compelled to bring in the producer under the assumption that they’ll bring in the additional revenue needed to justify higher salary demands. In most cases, paying a producer more than you can afford will lead to failure because the person can’t make enough sales to validate their salary and still make a profit for the agency. No program can guarantee that the agency will hire the correct individual every time. The only way to know that the right person is in the right job is to observe them in the work environment. Devoting quality time in the selection process will greatly enhance the chances of success for both agency and producer. STEP 8: SET A GAME PLAN TO VALIDATE THE PRODUCEER At the end of three years with an agency, a producer should be handling a book of business and developing a gross commission level that when multiplied by the agency’s standard commission split equals his or her base salary. For example, if a new producer is hired at a $60,000 annual base salary, at the end of the third year he or she should be handling at least $200,000 in gross annual commission ($200,000 x 30% [the agency’s standard commission split] = $60,000). It’s important to put new producers on a structured program to validate their base compensation level by the end of three years. Otherwise, the agency’s investment in the producer becomes too costly. All producers should know their target level of gross production. Most producers will achieve this goal by combining new accounts with house accounts passed to them for servicing. CONCLUSION At some point, every agency faces the challenge of attracting, hiring, training, and retaining high-quality new producers. Because your investment in people, especially producers, is so costly, make every effort made to: (1) solidify the requirements for a producer; (2) determine the agency’s ability to compensate the candidate properly and profitably; (3) choose the right candidate; (4) establish a sales and validation game plan; and (5) manage the producer’s sales activities to ensure success or detect early potential for failure.
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