We have just returned from performing an agency analysis in an agency with profit problems. We found that they were spending less than the average agency in personnel costs but were also much less efficient and productive than they should have been for their size and mix of business. They paid approximately 15% below the average compensation in the area for insurance personnel, but the result was productivity rates 25% – 40% below the Composite Group of similar sized agencies (see our Fall Composite Group issue of the Pipeline each year). The end result was constant backlogs (further eroding service) and the need to overstaff compared to the agencies performing similar functions.
It is easy to reiterate the obvious. Pay for the best and you can expect the best performance. Pay mediocre wages and you should expect no better than mediocre performance. But fair compensation alone (or the lack of it) does not appear to be the only performance motivator in an agency.
We have seen agencies paying relatively high wages and not getting the desired performance results due to lack of management and/or lack of management communications. Management refers to supervision, relating performance expectations to your employees and monitoring their performance to assure adherence to agency policies. Communications involves talking to employees, praising strong performance and criticizing (and correcting) weak performance.
We also know agencies who do not pay employees competitive wages but have such even-handed and supportive management that the employees stay when they know they can make more money elsewhere. This proves the point that while money is a very important motivator, it is neither the only nor the most important way to keep employees.
Notwithstanding these notable exceptions and assuming good management, the majorities of agencies who pay salaries below that of their competitors attract lower qualified and lower motivated employees. These employees reflect their attitudes back to the clients and carriers as the attitude of the agency. So, when you determine how you are going to compensate your new (or existing) employees, ask yourself, “ Am I proud of the way this employee reacts with my clients and carriers on my behalf?”
Take a look at the statistics below. It reflects the average productivity (revenue per employee) and percentage of revenue represented by administrative employee costs in agencies in the four Composite Group categories measured by Agency Consulting Group, Inc. Measure your productivity and percentage of income and ask yourself if your employees’ performance is equivalent to your position on the compensation scale.
See Chart Below
COMPENSATION AND PRODUCTIVITY
Group 1 (<$1 million)
Productivity $93,800
% of Revenue
In Admin Pay 21.3%
Group 2 (<$1-$2 million)
Productivity $75,113
% of Revenue
In Admin Pay 20.6%
Group 3 (<$2-$3 million)
Productivity $87,255
% of Revenue
In Admin Pay 21%
Group 4 (>$3 Million)
Productivity $104,739
% of Revenue
In Admin Pay 21.2%