Understanding compensation costs for your firm.
Getting compensation and staffing right is an important factor in operating any firm in the best of times. As owners and leaders face new and unique challenges such as building relationships and closing new business in a virtual environment, correct compensation levels are crucial as brokers have a heightened risk of experiencing significant hardships resulting from shutdowns and managing expenses with declining revenue projections.
Since most firms allocate nearly two-thirds of their revenue to compensation costs, it is extremely important to take a look at what insurance agencies and brokerages are paying their sales, service, support and executive personnel. To provide insight to firms, MarshBerry conducts a biennial Insurance Brokerage Compensation Study (“Study”).
Our 2020 report, with data received in November – December of 2019, does not reflect any impact from the COVID-19 outbreak. However, results suggest increases in executive compensation were already more conservative than what has been reported in recent years. Respondents appeared to be in a wait-and-see approach, especially when it comes to bonuses, which are frequently determined on a discretionary basis. This may have benefited many firms in the long-run.
Indeed, we anticipate many firms will continue this approach as the year progresses and any impact from COVID-19 becomes more evident. Of course, it is to be expected that 2020 results will likely be different from what Study respondents expected at the end of last year. Data from MarshBerry’s proprietary financial management system Perspectives for High Performance (“PHP”) shows that executive compensation (as a percentage of net revenue) in 1Q20 was down 3.7% compared to 1Q19. The economic impacts for the first half of this year are driving quite a bit of variability at this point – while some firms have made more significant cutbacks, others have reported executive compensation is higher or flat relative to 1Q19.
Over the next few days, we will continue to explore other significant compensation trends within the production and service functions.
If you have questions about Today’s ViewPoint, or about creating a compensation strategy for your firm, please email or call Tommy McDonald, Vice President, at 440.392.6700.
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