Compensation Freeze Comes to an End?
It looks like the freeze may be over. For the first time since 2008, independent agency salaries rose in 2011, albeit only slightly.
According to Insurance Journal‘s annual Agency Salary Survey, the average salary hike last year for agency management, including owners, principals and other management positions came in at a 1.1 percent, compared to a decrease in 2010 of -0.6 percent.
Sales staffs were granted an average salary raise in 2011 of just 1.6 percent, compared to a decrease of -0.2 percent in 2010.
Agency support staffs had the highest raises in 2011, according to the survey, with a 2.1 percent raise on average. In 2010, support staffs had average raises of just 0.6 percent.
The IJ Agency Salary Survey generated more than 900 responses from independent insurance agencies in every state, providing insight into who’s worth what in the independent agency system. Demotech Inc., IJ‘s official research partner, provided analysis and input on this year’s survey results.
Freeze Is Over, Maybe
While 2011 was an improvement, independent agencies predict even better times are ahead with agencies not only further upping pay but also adding benefits and employees in 2012.
One-third (33.9 percent) of agency owners and managers responding to the survey say they plan to increase compensation in 2012, compared to just 20.7 percent who expected to increase pay in 2011.
Some 31 percent of agency owners/managers also report that they plan to increase hiring in 2012, compared to just 14.9 percent in 2011.
Only 5 percent of agency owners/managers expect to utilize a forced reduction in staff in 2012, compared to 11.7 percent that expected a forced reduction in 2011.
Another positive sign: benefits will get better for agencies in 2012. According to the IJ Agency Salary Survey, only 9.1 percent of agency owners/managers plan to shift more health care costs to employees. In the 2011 Survey, 19.5 percent of agency owners/managers expected to shift health costs.
However, agency employees responding to the survey report a frustration when it comes to health insurance and other work-related benefits.
“My compensation has been negatively affected as much by health care reform as by the economic downturn,” one respondent wrote. “Since 2007 my income has decreased 11 percent.”
Another said: “I have been here four years; and now, because of health insurance increases, my salary is lower than when I originally started here. No raises, high increase in my own costs. … doesn’t make a happy camper.”
According to the IJ Agency Salary Survey, 76.8 percent of agencies will offer group health insurance in 2012, compared to 79.9 percent in 2011.
Another important benefit for agency employees will take a hit in 2012 – educational reimbursement. Just 44.6 percent of agencies will offer reimbursement for education in 2012, compared to 48.2 percent in 2011.
Consultants Skeptical
Randy Schwantz, CEO of The Wedge Group consulting firm in Dallas, Texas, can’t say whether the compensation freeze in agencies is over, but believes that as a general rule producers are probably making less money today than they were two and a half to three years ago.
The down economy and soft market have been negative influences on the amount of money producers make, Schwantz said. “But as the market’s starting to firm in certain places, certain lines of business are getting harder, and so renewals are going up. Certainly that’s a good thing,” he said.
Other industry onlookers also question how widespread the trend of compensation increases really is.
Chris Burand, owner of the agency management consulting firm Burand and Associates LLC in Pueblo, Colo., thinks a freeze on compensation has remained intact in independent agencies.
“I’m still not seeing very much in the way of staff raises,” Burand said. In his view, compensation raises in agencies today remain non-existent or very minimal at best.
“The only place I’m really seeing (raises) is when there’s job-hopping involved, and that’s creating some interesting situations where the new people are paid materially more than the people that have been there for five to 10 years,” Burand said.
Some respondents to IJ‘s Agency Salary Survey agree with Burand’s assessment.
One respondent said: “I have been with this agency for four years and I have never received a raise or health insurance.”
Another respondent said: “No raises for four years make it a difficult work environment.”
And yet another added: “In lieu of raises the last few years, what we have been told is ‘be glad you have a job.’ I am so tired of hearing that.”
Al Diamond, president of the Cherry Hill, N.J.-based Agency Consulting Group, says agency salaries as a percentage of agency revenues appear to be holding steady in the 20 percent to 23 percent of revenue range for non-production, non-executive salaries.
“This has been ranging upwards of the 20 to 25 percent mark, and down to about 19 or 20 percent for the last 10 years,” Diamond said. However, as the market improves so will salaries, and growth indications are good for most regions in the United States.
“It’s regional,” Diamond said. “It appears that with the exception of certain down markets, the market is balanced and firming a little bit. Rates are stabilizing and going up a little bit, and growth is coming back.” With growth comes pay raises, Diamond added.
One agency owner responding to IJ‘s survey claimed there has been no salary increases in his agency for the past three years. But, “we will give an average of 3 percent increase this year,” the respondent said.
Another agency employee expressed gratitude in this year’s Salary Survey. “I’m thankful I have a job,” the respondent wrote. “I’m not going to complain about salary increases or lack thereof. This is a good company. The economy will turn.”
Slightly more than half (52 percent) of all agencies responding to the IJ survey said they see signs of economic recovery in their commercial lines book of business as well, which bodes well for agency salary raises in 2012.
But holding out for a better economy and firmer market is not going to lead to higher compensation for most agencies, consultant Burand said.
“If an agency likes to sit back and let customers come to them, barring some unusual set of circumstances like the North Dakota oil field, I think they’re going to have a very hard year, even with the market turning a little bit it can be a tough year,” Burand said.
For producers willing to get out there and work hard, the opportunities are great, Burand added. “When you get out there and really work it, the sales are there. The opportunities are there.”
Compensation Doesn’t Drive Growth
While many believe that compensation should help drive agency growth, Schwantz claims that when it comes to independent agencies, compensation is almost irrelevant to success – almost.
“This goes against other common wisdom, but I’ve seen first-hand that compensation in the big picture has very little to do with those who produce and those who don’t,” Schwantz said. “It doesn’t drive production very much.”
What drives production and agency growth is leadership, according to Schwantz.
“Our industry is full of a lot of non-producers with their own books of business. You change the commission rate … it doesn’t change producer behavior in hardly any cases,” he said.
To drive growth, agency leaders must set real quality goals, run great sales meetings, offer training and skills building, and make sure to bring people into the agency who have the heart and the DNA to want to make something happen, Schwantz says.
Burand contends that in order to keep producers happy and producing, agency owners need to make sure compensation is up to par.
“In most agencies, the good producers subsidize the bad producers. If an agency wants to make sure that they keep their good producers and keep their good producers happy and keep their good producers producing, then they need to make sure that they are paying them enough,” Burand said. “Not too much that they’re losing money, but paying them enough to keep them happy, and keep them motivated.”
Diamond advocates that growth in compensation should come from increased production by sales people and increased productivity by employees.
“We shouldn’t be giving raises based on how we feel about somebody,” Diamond says. “We should be giving raises based on enhanced productivity of that person within their job.”
Diamond also advises agencies to continue streamlining in a post-recession, firmer market world.
“Don’t look to add a lot of employees – look to use your automation better. Look to streamline things so that the employees you have can do 5 percent more customers, more revenue for you and then pay them for that. They’ll appreciate it and you’ll get better employees.”
Insurance Journal‘s Agency Salary Survey collected 912 responses from independent insurance agencies nationwide via an online survey, Jan. 12 to Feb. 6, 2012. For more information, contact awells@insurancejournal.com.