This month’s cover story for the IA Magazine focuses on the various ways in which successful agencies are paying their producers. According to a recent study by Reagan Consulting, for the most part, there was little or no correlation between agency growth and the use of many standard producer compensation models (e.g., paying less for renewals than existing business, stair stepping of rates for new business produced). Instead, the agencies that were experiencing above average growth set high performance standards for their producers and rewarded those producers who met them and penalized those who did not.
One of the agencies discussed in the article was Pritchard and Jerden, which is based in Atlanta. Its producer compensation model involves establishing annual goals for both retaining business and writing new business. Those producers who meet their goals are paid at the top commission rates and earn an annual bonus based on the amount of growth they produced. As an incentive to meet their new business goals, at the beginning of each year, five percentage points is withheld from renewal commissions for all the producers. Once a producer meets his or her minimum requirements for new business, the amount withheld is paid in a lump sum. Producers who fail to meet minimum growth requirements two years in a row have to meet those requirements for the next two years consecutively to regain their original renewal rates. For more examples of successful producer compensation models, click here to read the full article.
How producers are compensated has been identified as an important factor in attracting young people to the insurance industry. In a recent post, Jim Schubert of Southern States Insurance in Douglasville discusses six ways to increase the recruitment of young people and to retain them once they are recruited. One way is to provide appropriate compensation incentives for the conduct you want from them. His agency pays the same commission rates for new and renewal business as a way to encourage its producers to establish strong relationships with their existing customers and thereby, make it easier to fend off attempts by other producers to take their business. He also creates competitions among the producers with both large and small rewards for the winners. His final piece of advice is perhaps the best and can be applied to both young and established producers, “Above all find out what really motivates your young agents. Sometimes, its just good ole fashioned recognition.” (Click here to read the rest of the ways to increase the recruitment and retention of young producers.)
I am interested to hear from my readers about your experiences in determining what works best in compensating producers. The IA Magazine article makes it clear that no one size fits all in this area. Let us know what works best for you.