Posted on 10 Sep 13 by Annie George
In the past, we’ve discussed several issues important to independent insurance agencies, including fostering a sales culture, producer and CSR compensation, employee motivation, perpetuation, profitability and growth, among other topics. These issues continue to be challenging for agencies, especially as talent becomes more difficult to attract and retain with many in the industry nearing retirement age. Agencies are looking for staff to be committed and an integral contributor of the agency’s growth. In order to do this effectively, everyone needs to have some “skin in the game”, which can be accomplished through a compensation system that has each and every person in the agency accountable.
This is what Tom Baker, Insurance Systems Architect, and the team at Catalyst Insurance Systems, deliver to their agency clients – a completely customizable compensation program that is based on staff performance. Their Performance-Based Compensation Plan is designed to attract, maintain, and motivate staff while giving them an opportunity to earn more and have a vested interested in the agency’s growth and profitability. The Performance-Based Compensation Plan provides agencies of all sizes with a customized program that incorporates coaching and training, clear job definitions and performance indicators, processes to manage performance, and accountability and reporting to help affect the bottom line and profitability of an organization and each of its employees.
Tom’s background as a marriage and family counselor and leadership coach gives him unique insight into helping business teams resolve conflicts and motivate and work together. His work in the financial industry with credit unions in the 1990s developing performance-based compensation software coupled with productivity coaching and classes saw his clients experience an increase of 18-19% in new loans compared to banks, which were at 11%. The performance-based compensation program motivated the staff to become engaged and focused with clear job definitions and the tools to measure their results. Nearly 10 years ago, he developed a system for the insurance industry, delivering results to more than 300 agencies.
Annie George (AG): When you began working with insurance agencies, what types of issues did you find?
Tom Baker (TB): “Just as in any relationship, you’ll find conflict when people are using the same words but finding themselves having a different conversation. When there is no clear definition of what needs to be accomplished and how things should be done, you can’t move forward. In an agency, you’ll find the staff doing business in as many different ways as there are individuals because there have no clear job definitions and processes in place. You’ll also find the owner or principal trying to manage all of these people. Our philosophy is that you manage processes; you lead people. Managing is too much work. I saw agency owners trying to manage their staff to get them to do what they want. But you can’t get everyone to do everything the way you want. You can, however, lead them.
“I also saw a disconnect between what staff members thought their jobs were and what the owner thought. The staff also didn’t have a way of making more money and needed some way to accomplish this. Again, this gap was due to the fact that there wasn’t a clear path with definitions and processes in place.
“There were also situations in which producers were leaving money on the table. The producers were costing the agencies as much as money as they made due to a lack of consistency in the way they conducted business. They weren’t following a set track. The compensation system also worked against the owner as he was paying producers 40% on new business and 30% on renewals. The problem with this approach is that producers will then focus on their renewal book to pay their bills, and not concentrate on also getting new business.
“What we do is provide the components needed to pull everyone together. This involves support, coaching, and technology so that the owner has a consistent way of doing business and everyone in the organization is on the same page. We identify the people that will help grow the business, and weed out those that won’t. The entire staff – producers, CSRs, accounting, IT, etc., – is on the same type of plan. Everyone has a clear definition of their job with a clear mission of how to make more money and have a profitable company.”
AG: How do you go about determining the actual plan for a specific agency?
TB: “First we take a look at the fundamentals. We help owners make decisions based on business metrics. What is the business case for how you run your business? What can you afford to put on the table for compensation? How do you base your compensation? We will create a modified P&L statement, listing all operating expenses, marketing expenditures, capital, taxes, benefits, and how much an owner wants to make at the end of the year. We account for all expenses except compensation. If, for example, you’re anticipating $500,000 to come into the agency and $300,00 going out, then you’re left with $200,000 to pay the staff based on your business metrics.
“We then help create Key Performance Indicators (KPIs) – the business behaviors/drivers that apply to each position in the organization that will lead to increased productivity and effectiveness and add to the bottom line and profitability. KPIs, for example, depending on the position, can include: the number of cold calls made, the number of account reviews conducted, the number of referrals obtained, the number of testimonials received, workflow efficiency (entering data into agency management system and doing work on a timely basis), etc. We identify each process and create a KPI along with a definition so that everyone knows what needs to be done.
“The third step is to create an individual profile based on the person’s job description. We base it on the position, not the person. We determine the compensation for the job description. In many agencies, we find that compensation has typically been based on salary or an hourly rate plus a bonus “if” certain things happen. We take the “if” out of the equation. We look at what we want their income to be. That means looking at what the individual made and then giving him the responsibility, not the opportunity, to make more. If you don’t earn the amount we set, then there will be consequences. An employee doesn’t get to decide if he wants to earn that extra 10%. It’s part of his job; if he doesn’t earn it then he hasn’t done his job.
“We also enable the individual to own his compensation – “this is my money and I’m not going to lose it because I haven’t done my job.” Once he owns it, he will protect it. We’ve changed the scenario from making a $30,000 salary with the potential for $3,000 bonus to you will make $33,000. This applies across the board, including to producers.
AG: How does the performance-based compensation work?
TB: “Compensation can be divided in three ways: an hourly rate or salary, commission, and performance income, or any combination thereof. We’ll set a renewal goal based on retention and a new business goal based on the net increase the agency wants for the year. Then we will come up with a total revenue goal, which is the combination of new business and renewals. This can be assigned to an individual’s book, a department’s book, cross-departments’ book (for example, personal lines, commercial lines and IT working as a team), an entire agency team, or a branch team. The benefit of having a team is that everyone gets their prime commission rate or their reduced commission rate. We take the combined goal of renewal retention and new business and divide it by 12. Each month, if the individual or team does their job they will get their prime commission rate. If they’re working as a team, the commission rate would vary for each person, depending on their position. If they don’t do their job, they will receive a reduced commission.
“The system will automatically pay the amount due. Additionally, if the goal is not reached for one month, our system will pay the reduced amount and raise the goal for the following month. If, in the next month, the goal is achieved, the system will go back and pick up the dollars that were not received, and lower the goal for the next month. Our system will automatically adjust the goals, keeping everyone on track for the year.
“With this system, you have everyone working together with the same goal and knowing what they need to do to achieve it. The performance-based compensation plan encourages everyone to have a stake in every dollar coming into the agency or book of business or department, depending on how it’s set up. You can include producers, CSRs, accounting personnel, the receptionist, everyone in the plan – it’s up to the agency as the system is very nimble and flexible. And when you do have everyone in the organization involved, people will begin to see the business differently. They will realize that when the agency is profitable, then they’re making more money. When we get people shifting from an individual focus to looking at the bigger picture, the dynamics of the organization begin to change.
“The performance piece of the plan involves conducting an employee evaluation four times a year. Each person will get a score between 0 and 100. The amount of money they receive depends on their performance score. Most agencies will give the full amount if the score is 95 to 100; if the score is between 89 and 94, 75% of the performance money is typically given. The performance score is based on each KPI, which is given an annual goal and a maximum score. For example, let’s say the KPI for the number of referrals is a goal of 100 for the year and represents 10 points. If the individual obtains 100 referrals for the year, he will get all 10 points. If he gets 90 referrals, he will receive 90% of the points. Furthermore, the KPI reporting works the same way as the commission reporting – everything is tracked and adjusted up or down per quarter based on past performance. The staff knows exactly what’s going on. And management has a tool to look at each individual’s performance at any stage. It’s objective and measurable.
“Included on the system is a staff dashboard where employees can track their progress. It’s simple and quick to use. They can look at what’s in their database and check their performance throughout the year. And, because the staff has bought into their compensation plan, they are more than willing to take a few seconds to log their achievements in order to get the income that they ‘own’.
“This system truly empowers the staff to take personal responsibility for their success. The staff loves it because employees have a pathway to make more money and an objective way to know when they are successful. Owners love it because compensation is about ‘investment’ rather than ‘expense’ and they have a way to measure key business drivers without having to create a complicated, time consuming plan of their own.”
The Performance-Based Compensation Plan has also been implemented in MGAs, captives and niche operations. The cost of the system is $1,495.00, with a monthly fee of $50-$250 (depending on size of organization) and includes unlimited live support for agency management and staff to create, maintain and monitor their compensation plan. Contact Tom for a no-cost/no-obligation assessment of your current compensation plan or for more information at 972.961.4798 or via email at firstname.lastname@example.org, or Nina Messer at 864-641-1226 or via email at email@example.com