Finding the right balance: Time to get creative with comp

What makes employees happy at work? Is it pay? Is it benefits? Culture, leadership or employee development opportunities?

In today’s competitive insurance job market, it’s all of those and more.

Employee satisfaction comes from finding the right balance in monetary compensation and benefits, as well as from understanding what employees value in the workplace, according to Mary Newgard, partner with Capstone Search Group, a national insurance industry recruiting firm.

While money will always be significant, there are other factors that attract candidates to new roles.

“Non-monetary elements such as career development opportunities, relocation options, upward mobility, flexible hours and cultural fit also play an important role,” says David Coons, senior vice president, at The Jacobson Group.

Employers must be creative to strike the right balance between money and non-traditional benefits in order to attract job candidates and keep employees satisfied.

The magic formula begins with transparency.

“Open the door and start the conversation about compensation with employees,” Newgard advises. In today’s job market, agency owners can’t wait for employees to speak up when they are unhappy about compensation, she said.

“That’s just never going to happen. You’re only going to know that they were unhappy when they resign.”

That means taking the initiative to discuss compensation. “You need to broach the subject and not be scared about it because if you’re operating from a place of fear, then all you’re ever going to do is be reacting,” she adds.

Not talking leads to misunderstanding. Agency owners end up thinking employees always just want more. “That’s not really the case,” Newgard says. “You’ve got to find out what they value.”

Understanding what employees and job candidates value most could be very important in today’s job market. Satisfaction over agency compensation took a slight dip across all positions, according to the 2020 Agency Salary Survey, published annually by Insurance Journal (see Agency Employee Satisfaction Falls Despite Pay Raise, page 37). Despite pay raises remaining relatively consistent from the prior year, on average, employee satisfaction with compensation overall declined for the first time in five years in 2019.

Newgard says the primary reason people leave their agency is because they’re not satisfied. “That is because either they’re not receiving pay raises, they’re not receiving bonuses, or they are receiving some bonus but there’s twice the workload.”

This is particularly true for core employees such as account managers and service-focused staff.

“What I try to talk to agencies about is the talent shortage is not going to improve fast enough for you to fix your problem,” she says.

Agencies must do one of two things. “As an organization, you either need to reduce the amount of employees that you have, but give them more responsibilities and as a result pay them more. Or you need to flatten and as an agency you’re paying less per employee, but you’re having more employees of lesser skills.”

Newgard says if agencies are not going to give bonuses then they should be increasing salaries every year. A top commercial lines account manager will expect either a $10,000 increase in pay or a 10% increase when he or she makes a move as a job seeker. “And they can get that,” she says.

Newgard says to avoid losing the best talent, but continuing to pay in the “fair, middle space,” agencies need to do things that their people want.

Compensation Strategy

The best performing agencies are strategic and creative when it comes to total compensation, says Tommy McDonald, vice president at Marsh, Berry & Co., a national firm that provides intellectual capital, strategic consulting, and merger and acquisition advice to clients within the insurance industry.

“We always tell our clients to do strategic planning on a consistent basis, and most of our best performing firms dedicate an entire day to define what compensation actually means to them,” McDonald says.

That’s important because no two firms are the same. What works for one agency, may not work for another.

He also advises agencies to become educated on market standards for compensation while at the same time getting creative. Even in areas that rarely change such as producer commissions — there are ways to get creative, McDonald says.

“When I came into the industry, people would ask what should a producer get paid on new and renewal? And the common response was 40% on new business and 25% on renewal,” he said. “But what I’ve learned from working with insurance agencies on that specific topic alone is, there’s so many different ways to get to 25% on renewal,” he said.

“Don’t feel like you have to follow the market … you can create something that’s leading the market.”

People stay when a firm is growing and performing. “So you can integrate a lot of that stuff into the process if you’re very thoughtful about changing it,” he added.

In his experience, the best performing firms are ones that examine compensation on a regular basis. “We typically recommend that firms are continually looking at how to properly compensate their salespeople on new and renewal with an incentive on new business, and some sort of protection on the renewal,” he said.

According to the 2020 Insurance Journal Agency Salary Survey, 79.3% of agency owners responding to the survey have no plans to change commission structures in 2020, while 12.9% noted they will make changes in 2020. Just 6.3% made changes to commission structures in 2019.

MarshBerry’s biennial insurance agency compensation study found similar results, with 84% saying they haven’t changed, or don’t plan to change, their commission structures. “There’s very little change,” McDonald noted.

Only 9% of firms actually reported an increase rather than a decrease in commission percentages. For the agencies MarshBerry surveyed, the average commission rate overall is 41% new and 29% on renewal.

Even when agencies do change producer commission structures, they should not just simply cut the renewal and cut pay, McDonald said. Most try to figure out the right path for both current producers and new producer talent.

For example, historically producer pay has always focused on commissions. “The whole model is, you validate your salary and if your salary is enough to justify the book that you built, then you go to commission,” is how McDonald describes the traditional formula.

While that’s been a good model for the industry, agencies might want to revisit it, McDonald said. “A lot of our clients are saying if 25-year-olds, or 30-year-olds, don’t want to go on a commission, how do we use that to our benefit?” he notes. It might be time to rethink the salary versus commission discussion in a way that puts the firm in a position to attract talent, McDonald added.

According to the consultant, firms looking to build high-quality organizations have added equity incentive programs into their compensation packages, one that doesn’t have to be only producer driven.

“There can be compensation benefits where people can get an opportunity to buy into an organization or get some sort of equity allocation for being a key employee,” McDonald said. “I think that’s a really interesting way to attract and retain talent that people often overlook because they assimilate equity with control.”

But equity does not necessarily mean control if it’s done right.

“If you’re trying to compete with the upper echelon of talent, this should be another area where firms should be thoughtful and use as an opportunity to really build an alignment around growth and success,” he said. “You very rarely lose people that are bought into the firm.”

Insurance Journal’s official research partner, Demotech Inc., assisted with analysis of the 2020 Agency Salary Survey.