What Should I Pay My Client Service Employees?
Indianapolis Colts quarterback Andrew Luck will be up for a new contract after the upcoming season. In 2012 he joined the Colts who were coming off of a 2-14 season the year prior and managed to go 11-5 in each of his first three seasons before battling some injuries this past season. Along the way he set several rookie and career beginning records, helping the Colts to the playoffs in each season he was healthy. Saying Andrew Luck is pretty good is putting it mildly.
A few weeks ago Colts owner Jim Irsay commented on predictions for Luck’s new contract by stating, “It’s going to be a big number. It’s going to be a shocking number.” In the world of high stakes negotiations usually neither side likes to make bold statements. Critics might say Irsay just cost himself more money, but he’s smart. He’s taking care of his best player and putting himself ahead of 31 other NFL teams that would love to discuss compensation with Luck.
Insurance agencies can learn a lot about their own compensation philosophy through this example, particularly when it comes to client service positions. Without consistent data available, or utilization of uniform titles, owners lack confidence and second guess money as an effective way to attract and retain people in these roles.
Let’s take a look at simple ways to address compensation in account management positions.
What Is the Employee Worth to YOU
Assume your highest paid client service manager is also your organization’s most valuable. This is the person who has the most responsibility, the person that producers cannot live without and the person who has the most impact on clients. Luck is that employee to the Colts and his compensation sets the bar for the entire organization. An agency’s top client executives do the same within the service team.
Placing a key employee’s compensation at the top creates an individualized bandwidth for your agency where every employee falls around or below it. A hierarchical compensation philosophy, not based on tenure but on value to the company, builds appropriate internal equity. Everyone in an organization knows the star players. Seeing the star players excel motivates others to reach their level in the same way competition motivates. It is the old adage, iron sharpens iron.
Simply being around for the longest amount of time should not merit being the highest earner. Your business has limited financial resources so allocating in such a manner as to receive the most return on your investment is just good business.
Overpaying New Employees
Grossly underpaying or overpaying new hires is mostly a myth. The insurance industry finds a way to self-regulate within a narrow margin.
Client managers seek out a fair, competitive increase in what I call “The Rule of 10.” Most service professionals want a 10 percent or $10,000 increase. If the desired pay is greater than this rule it must come with good reason for both the agency and the candidate.
Any employee’s value to the organization is somewhat derived from replacement cost. Think about it like supply and demand meets the endless quest for the needle in the haystack. Only, in this instance, some haystacks have several needles, while others have just a few, and not everyone needs needles equally. Now answer two questions for your organization: How bad do you need a needle? How many needles are in this particular haystack?
If you have to have one, for instance client management if you run an insurance agency, we know the first answer. Then you have to assess the supply. A generalist commercial lines account manager for instance is a haystack with a lot of needles. These people are essential to your organization’s success but they are not overly difficult to replace so there is no need to act as though you cannot, under any circumstances, lose one and congruently, you should not overpay to acquire one. Now a highly specialized account executive or consultant who specializes in oil and gas business and excels in front of clients in high pressure situations comes from an entirely different haystack; one with far fewer needles. If you need one, and have the good fortune to identify one, you have to work hard to hire and retain them because the rarity makes replacement very difficult.
The $200,000 Account Executive
Three decades ago, no one in the NFL thought a player would make $20 million per year. Andrew Luck will soon join that club. The same is true for the consultant level service position.
Regional agencies have ignored the existence of account executives earning more than $150,000 because they cannot conceive paying such a figure in comparison to their current staff. However, a trend is emerging where regional brokers with separate risk management practices want client consultants. These talented individuals are asked to wear multiple hats in service, marketing, team leadership, sales and management.
Although starting the salary with a “two” is a difficult compensation shift, that shift is necessary for progressive firms with a national platform to acquire the type of talent necessary in large account divisions.
Compensation is an inexact science. The best advice I can offer is to trust your instincts. Rely on the information you’ve gained from interviews with professionals from similar agencies. Don’t be afraid to discuss the topic with current employees.
If you find candidates who, in terms of skills, abilities and/or pedigree, fit what you’re looking for but want more than you feel you should pay, it is possible you are not in tune with the market and may have to adjust either your budget to make the hire or your expectations of what a candidate will look like. Above all else be thankful that your compensation negotiations won’t be monitored by ESPN or that it takes $20 million to get the deal done.