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

Al Diamond is one of the country’s best known agency management consultants. His firm, the Agency Consulting Group, is based in Cherry Hill, New Jersey. He deals with agencies across the country on issues ranging from operations to mergers to sales and compensation. He is also 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 discusses how agencies can use compensation to re-energize not only producers but also non-producer employees.

Agencies are in the midst, currently, 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 stock brokers 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. We want them to buy it from our clients…

So, the market right now is… causing a lot changes. But the really strong agencies are just getting stronger. The weak agencies are falling by the wayside, if they don’t change.

What can agency managers do with producers who are not producing as much as before? How can agencies, through their compensation system, get them back on track?
Diamond: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. So they’re making a lot of money if they’re generating many hundreds of thousands of dollars of commissions. However, 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.
That’s a big difference — customers versus premiums. In a soft market, it’s not really within the producer’s control whether premiums are up or down.
Diamond:That’s exactly right. But he can keep all of his clients. And so he has to spend his time with his clients, as well as growing his business. If he goes backwards in numbers of clients, in his percentage of his book, then he should expect to get paid less as well.

Does this 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. So what we do is we target their productivity specifically to them, and we let the employees measure their own productivity every year… Suddenly the employees themselves have their own compensation in their hands. It’s not a commission. They’re still getting paid a salary. But they can control their salary by showing how much more productive they are every year.

Are employees responsive to this?
Diamond:Absolutely. It’s a wonderful tool. It takes a few years to indoctrinate that into a business. But once they do, two things happen. First, your marginal employees go away. That could be a positive or a negative, but those marginal employees that are just hanging on won’t stay. However your good employees are going to get even better, and you are going to attract high performance employees to your agency.