1. Agency Compensation Models
Rick Bondurant

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

3. 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

4. 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”

5. 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

6. 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.

7. 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

8. 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

9. 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

10. 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

11. 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

12. Bonus Plan Example 1 As a % of Salary
Performance Rating
Growth
Bonus
Productivity
Total
<3.0 0%
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

13. 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

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