Considering the significant investment that firms make in employees, it is critical to continually evaluate personnel productivity. Understanding staffing requirements in each job position and carefully planning personnel additions regularly, as projected growth is realized, is a key to maximizing a firm’s profitability and value.
To allow producers to directly affect their compensation, most brokerage firms pay validated producers commissions. New business is incentivized at a higher rate on average than renewal business across all U.S. regions. However, there are variations among regions regarding new and renewal commission rates.
Compensation changes vs. market changes
According to MarshBerry’s 2022 Insurance Agency & Brokerage Compensation Study (Study) the East region averaged the highest commission rates for new and renewal business among the U.S. regions for commercial lines. Furthermore, the commission rates in the East region were higher than the national average. While firms in the East region are offering greater incentives for producers to write new business, it appears they are investing less in new producers, having a lower unvalidated producer base salary compared to the Midwest, Southwest, and West regions.
According to the Study, 2021 producer commission percentages generally remained flat compared to the prior year. This suggests firms are not dramatically changing compensation despite clear economic fluctuations and changing market conditions.
Steps towards improved productivity
Effective sales management strategies can help drive firm productivity and new business production, as well as help producers better understand firm expectations. Here are some steps you can take toward better productivity:
- Know how you compare to peers: The average Total Commissions & Fees per Production Person for the Best 25% of member firms in MarshBerry’s Connect executive peer exchange network is $809,962. How does this compare to your production team? Producers or owners who are effectively delegating their servicing load should have higher than average performance in this area, but this ratio could be further analyzed depending on the firm’s average account size. Knowing how your firm compares to some of the industry’s most elite peers can either provide assurance knowing you’re a top performer or give your team something to strive for.
- Modify producer compensation plans. As the industry has changed, and firms have added services, capabilities, and a higher level of technically savvy employees, firms can benefit from a more focused approach on refining compensation plans. A set model that will fit all producer compensation plans is not realistic, however a firm should evaluate its cost structure, location, staffing needs, long-term growth, profitability goals, and then develop an appropriate plan that delivers sustainable returns on investments to the risk takers (shareholders/partners).
- Set Annual New Business Goals. Setting individual producer goals requires historical reflection on several years of production and strategic planning. Here are some categories of goal setting:
- Minimum Goal: Minimum amount of new business to maintain producer status. Could also be used for carrying-out negative ramifications if minimum goal is not achieved.
- Individual Goal: Producer’s stated professional goal
- Organizational Budget Goal: Firm’s budget goal for projection and growth budgeting purposes. This number is typically not communicated to the producer.
- Stretch goal: The best-case scenario goal typically used for closed business scoreboards. Could be set at individual or organization level.
- Reward the Hunter Mindset. High-growth firms have a variance of approximately 14% between new business commission and renewal commission percentages. The lower renewal commission percentage is made possible by the firm’s investment in an experienced and knowledgeable service staff.
- Best 25% firms, and those with the greatest organic growth, generate 34% more total new business dollars per production person compared to the average firm. This indicates that high revenue generating firms are better at incentivizing producers to focus on new business.
- A compensation model should have both an upside and downside related to compensation based on production — commonly termed the “carrot and stick model.” It is important to note that compensation restructuring is a complex and comprehensive process that involves several critical areas, including small business thresholds and minimum account thresholds.
- The fastest growing brokerage firms are consistently finding ways to boost productivity. Strong commitment, systematic and strategic planning all play a part in building a culture that encourages all employees, from executives to support staff, to focus on increasing new business production, generating profitability and driving growth.
MarshBerry advised more than 95 companies and completed 130 M&A transactions in 2021, closing another record year for the firm. MarshBerry continues to remain the number one sell side advisor for the 23rd year in a row and retains the top spot in the industry for total number of clients advised.
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