How to Re-ignite Producers – and Other Employees – Who Have Lost Their Spark

Incentive Compensation Focused on Customers, Not Premiums, Works, Consultant Says

Al Diamond is one of the country’s best known and respected agency management consultants.

His firm, the Agency Consulting Group, is based in Cherry Hill, N.J. Diamond consults with agencies across the country on issues ranging from operations to mergers to sales and compensation. He is a Best Practices instructor for the Independent Insurance Agents & Brokers of America and author of the newsletter, Pipeline.

In this excerpt from a video interview with Insurance Journal‘s Andrew Simpson, Diamond explains how agencies can develop a compensation plan to re-energize producers and non-producer employees, as well.

Insurance Journal: Agencies are in the midst of both the soft market and the recession. How do you think they’re doing?
Diamond: Well, it’s a very interesting time. I know that a lot of my compatriots are talking about tough times, recessions, layoffs and all of the things that go with a business downturn. I’m afraid I don’t share that philosophy.

Every economy poses challenges to the insurance industry. This economy is no different. The economy is neither bad nor good for us; it is. We’re like the stockbrokers of the world. There may be downturns in the market, or upticks in the insurance marketplace, but everyone still needs insurance. They’re going to buy it from someone. What we want is, we want them to buy it from our clients, using the independent agency network and the good companies that support those independent agents.

The market right now is in turmoil. … But the really strong agencies are just getting stronger. The weak agencies are falling by the wayside, if they don’t make changes in the way they operate.

IJ: What can agency managers do with a producer who is not producing like he or she used to? How can agency managers get them back on track?
Diamond: Well, that’s a very big question. Producers are generally motivated by money. They like money.

IJ: That’s a pretty short answer.
Diamond: Yes, that’s a pretty short answer. There are some producers who reach their level of comfort, and once they reach their level of comfort, they’re no longer as motivated to go forward.

We do producer compensation and producer contracts that reward producers, incentivize producers, and grow compensation for producers for growth, but disincentivizes them for shrinkage. In other words, if you grow your book of business, not only do you get commissions, whatever form of compensation, but the larger your book of business, the greater your economy of scale to the agency.

We have tiered compensation, so that at different levels of production, producers make ever-increasing percentages, back to the first dollar. So they’re making a lot of money if they’re generating many hundreds of thousands of dollars of commissions.

However, in order to get that, you have to have producers who are willing to say, “If I retire in place, if instead of being a producer I become an account executive and just take care of the customers I have, I can’t be called a producer any longer. I can’t be paid like a producer. I should be paid like an account executive.” And so we define a producer as someone who grows his book of business each year. I’m not talking about premiums or commissions, I’m talking about customers.

IJ: That’s a big difference — customers versus premiums — right? Because in a soft market, it’s not really within the producer’s control whether premiums are going up or down.
Diamond: That’s exactly right. But he can keep all of his clients. … If he goes backwards in numbers of clients, in his percentage of his book of business, then he should expect to get paid less as well.

IJ: Does incentive compensation work for non-producers?
Diamond: It works extremely well and now is an excellent time to begin those programs. Incentive compensation for non-producer employees is based on the premise that we can no longer pay for longevity. Just because you’ve been with me for 10 years doesn’t mean you deserve more every year. What we pay for, instead, is productivity. Every job in an agency has productivity factors, whether it’s revenue per employee or customer count or the number of claims you handle, or in an accounting department, how well you handle your receivables and budget. We measure that productivity factor for every job.

The more productive they are, the more money they make the agency. The more money they make the agency, the more we’re able to pay them. …

It doesn’t mean that the employee is guaranteed a job. If they don’t do a good job, the employer or the agent can still terminate them. …

However, if they’re doing a good job, then it’s the employee’s productivity increase that determines their compensation.

Topics Agencies Market