Agency Compensation Models Rick Bondurant

Compensation in Context Employment is a service Pay is the price Switching costs are high But so is employee disengagement

Characteristics of a Formal Pay Plan Compensation Truths Characteristics of a Formal Pay Plan Pay is a dissatisfier, not a motivator Being reactive costs more than being proactive Pay process is more important than pay levels All pay is commission-based Mutual interests are aligned Externally competitive Internally fair Related to agency performance

Aligned Interests My work has purpose I know what’s expected of me I have the resources I need I get to do what I do best I get regular feedback and recognition for good work Management cares about me personally I have opportunities to learn and grow My opinions count My co-workers are committed to the purpose I have a trusted confidant at work Adapted from the Gallup 12 “Total value proposition not just price”

Externally Competitive Paralegals & Legal Assistants $45,160 Loan Documentation Specialists $50,000 Customer Service Reps $28,770 Insurance Processing Clerks $43,200 Account Managers* $53,000 Insurance sales $82,610 2016 Bureau of Labor Statistics for Waco * MarshBerry for Southwest

Internally Fair CSR 10.00   14.00 18.00 Jill 15.50 Jack 11.25 Jane 14.50 Joan 17.50 Jill is a pl csr with 5 years experience and services pl commissions of $130,000. Jack is a pl csr with less than 2 years experience and services $85,000. Jane is a commercial csr with 2 years experience and services $120,000. Joan is a commercial csr with 7 years experience and services a commercial book of $250,000.

Performance-based For every dollar of commission $1.00 Targeted Operating Profit .15 Left to pay expenses .85 Business dev./selling expenses .05 Overhead .17 Left for compensation & benefits .62 Pay for non producer staff .30 Left to pay producers .33

Staff Models Salary only Base plus % of new only Base plus flat amount per new policies Base plus other rewards or incentives % of book serviced

Producer Models Level commission: 35% new and renewal Split commission: 40% new 30% renewal Tiered: 30% for under $200,000; 35% for under $400,000; 40% for over $400,000 Account threshold to qualify for producer book Vesting in book Commission rate varies inversely with degree of agency support Larger books bring larger economies of scale and thus agency profit

New Producer Model Base for minimum sustenance needs 1st year production target 1X base 2nd year production target 2X base 3rd year production target 3X base Adjusted for leakage Bonus for excess production

Manager Compensation Example Base salary Profitability: 1% of agency profit Retention: 5% of salary if goal met New Business: 1% of goal Overall Growth: 0.5% of difference from last period to current period

Bonus Plan Example 1 As a % of Salary Performance Rating Growth Bonus Productivity Total <3.0 0% 3.0 - 3.4 2.5% 5% 3.5 – 3.9 4.0% 8% 4.0 – 4.4 5.5% 11% 4.5 – 5.0 7.5% 15% Performance rating 1 through 5 for individual performance criteria Net revenue growth goal i.e. 110% of prior revenue Productivity goal i.e. 110% of prior revenue per employee

Bonus Example 2 Net revenues Operating profit 15% Bonus pool 15% of profit Operating profit 10% Bonus pool 10% $500,000 $75,000 $11,250 $50,000 $5,000 Owners and producers don’t participate Can allocate based on any number of criteria

Communication is the Key Transparent process aligning agency & employee interests Total value proposition Market based Internally fair Performance driven Strong business rationale