how should i compensate my producers?

[GOVERNER]

I am starting a new agency after being in the independent world for quite some time. I am not sure which module works best for paying my producers. I have considered a no base , just 50/50 split with the house where I 1099 them. I have considered a small base salary with maybe a 25/75 split with the house. I am split on how to proceed. What is the standard out their that many are finding successful and that will also allow for my producers to be able to survive financially.

If i do 1099, it saves me lots of money and i am not paying any benefits , taxes etc on them or for them. Also they are responsible all their supplies, telephone,cell,gas,office equipment etc. They will be working remote from their homes.So all the risk and expenses really fall on them.

If I pay a salary to them I will reduce the commission payout to only 25/75. They will still be responsible for all their supplies ,gas,cell,etc. But since the risk factor is more on me if they don't produce , thus I am paying thing a lower commission.

Some have mentioned that at 1099 75/25 is fair. Not sure , looking for advice.

[Insurance101]

There are many factors that come in to play when putting together a comp package for a producer. There are several questions to consider which arent about the commission split, but can and should effect the commission split:

- Who will be servicing the business? Is the producer going to handle the day to day servicing or do you have a support team of Account Execs who will handle all servicing once an account is bound?
- Who is going to market and quote the business?
- Who is going to own the business? (This is a very important question). And will you have a contract in place stating who owns the business (not just a verbal discussion and certainly not just ignoring the subject all together, with the assumption that you own it)
- Will there be goals and a plan put in place for your producer? If so, will you track those goals?
- Is this producer going to be exclusively working for you and will it state that in a contract?

In terms of commission split, many of the above questions are factors that come in to play. I can tell you from an industry-wide standpoint, the norm is to pay an employee-producer a commission split in a range of somewhere between 35-50% on new business and somewhere between 25-35% on renewal. Additionally, there could be bonus incentives in place for reaching certain golas that could add a few extra points to the equation.

It is also common to pay a producer a draw against future commissions so the producer has a steady base income coming in on a monthly basis. As you can see, there are many factors to consider and your questions cant really be properly addressed without knowing the answers to some of these questions above. Hope this helps. Good luck!!

[justthere]

We have found over the years that the only producers who have worked out have been commission only with no base salary. If you think about it, nobody gave us a base salary and we had to bust our butts to survive. Every time that we have given a base, the person has failed. I am not saying that commission only has worked every time but it has had a better return than 0%. You will probably go through many producers before you get a star. But that star makes up for every failure.

[spokaneins]

with peanuts

[AgencyEquity]

Consider hiring a consultant, most if not all of those who consult with Insurance Agencies have had prior experience as an Agency Principal or Executive. They know what works and what doesn't work. I have a list of consultants on my website.

[Anthoney]

Very knowledgeable post.....I have read and find it new concept , how to deal with such a situation in real time environment.
The suggestions are indeed workable with reliable response.

[wlunday]

If you're going to be in business... be in business. there is nothing worse than the agent that wants to grow the book but is unwilling to spend the money for employee benefits and payroll taxes.

You say you want to save money... then don't open an agency with 1099 sub-contractors! They will not be beholden to you, any non-compete will be worthless as they don't really work for you, and no matter what "split" you pay them, the word will get out that you're too cheap to even provide the basic employee benefits like workers comp and payroll taxes! Don't be that guy. Do it right or not at all. My two cents (less payroll taxes, of course!)

Wayne Lunday, LUTCF, CLU, ChFC

[RKunz2]

If i do 1099, it saves me lots of money and i am not paying any benefits , taxes etc on them or for them. Also they are responsible all their supplies, telephone,cell,gas,office equipment etc. They will be working remote from their homes.So all the risk and expenses really fall on them.

If I pay a salary to them I will reduce the commission payout to only 25/75. They will still be responsible for all their supplies ,gas,cell,etc. But since the risk factor is more on me if they don't produce , thus I am paying thing a lower commission.

This discussion brings up a lot of interesting points. Having worked on both sides of this particular fence, here's my two cents. You didn't say who owns the book, services the business, etc., but let's just assume you own and the producer services because if you're baulking at taxes and other employer overhead then I can see where this is likely going. Let me simply postulate this premise - you want this producer to use his/her personal cell phone for your business, his/her gas, car, maintenance expense...to cultivate your business, his/her computer, paper, printer, etc...to build your business. Hmmm....okay?

I guess there's just one thing to say, "Well said, Wayne!"

[MarketMaker]

Sounds like the replies to your question didn't come from agency owners.

If you pay a salary, (I call that a hammock) don't expect alot of production, because there is no incentive when you are paying an "entitlement".

You also have to be careful if your are paying on a 1099 that there is an armslength between the contractor and the firm, otherwise you might end up qualifying as an employer anyway. They need to be truly independent - meaning work on their time, etc.

We pay a 50%/50% split, we provide office space, telephone use, computer use, supplies, service staff, cards and access to all our carriers. That is very generous. In exchaange I expect an ever-increasing book, and the day the book plateaus, the split will be revisited, particularly the renewals, because at that point my staff will be doing work servicing a diminishing book because the producer will in effect be semi-retired.

If the new policy count falls below the average of the previous htree (3) years, the producer is in danger of having his compensation for renewals to fall to 25%. This comensates for the soft pricing and shrinkage due to the reduction in payrolls and receipts of customers.

We also have a minimum account size for commercial production - $10,000. Anything smaller is unprofitable for the producer to be messing around with. It takes just as much work to write a $5,000 account as it does a $50,000 account.

[RKunz2]

Sounds like the replies to your question didn't come from agency owners.

If you pay a salary, (I call that a hammock) don't expect alot of production, because there is no incentive when you are paying an "entitlement".

You also have to be careful if your are paying on a 1099 that there is an armslength between the contractor and the firm, otherwise you might end up qualifying as an employer anyway. They need to be truly independent - meaning work on their time, etc.

We pay a 50%/50% split, we provide office space, telephone use, computer use, supplies, service staff, cards and access to all our carriers. That is very generous. In exchaange I expect an ever-increasing book, and the day the book plateaus, the split will be revisited, particularly the renewals, because at that point my staff will be doing work servicing a diminishing book because the producer will in effect be semi-retired.

If the new policy count falls below the average of the previous htree (3) years, the producer is in danger of having his compensation for renewals to fall to 25%. This comensates for the soft pricing and shrinkage due to the reduction in payrolls and receipts of customers.

We also have a minimum account size for commercial production - $10,000. Anything smaller is unprofitable for the producer to be messing around with. It takes just as much work to write a $5,000 account as it does a $50,000 account.

Quick to judge and slow to understand. If you read the comment, you'd notice that both sides of the fence point; one as an owner, the other as a producer. Nonetheless, you provide a great deal of support for your producers to help ensure their success, along with that of the agency. In your case, your argument is infinitely stronger because of the level of compensation offered and the support that goes with it. You're making an on-going investment and so should the producer. The structure you laid down sounds vastly different than how the original writer started this discussion.

By the by, there's more than just working on your own time that decides the detrmination of independent contractor; such as, percentage of total annual income derived from a single source, amount and degree of direction received, etc.

[Producer19]

what would you all say is a solid book of business for a producer that has been in the business 4 years? i am in Mass. i am just curious on feedback. thanks