Employees Have Upper Hand in Today’s Agency Job Market

By | February 18, 2019

Owners Must Show Them the Money, Culture and Other Perks

As the insurance industry unemployment rate continues to hover at 1.7 percent, which is lower than the national average of 3.9 percent, insurance agencies face stiff competition in the war over talent. This means employee satisfaction is more critical than ever.

Everything counts in today’s competitive insurance industry workforce — satisfaction with salary, employee benefits, organizational culture, co-workers and more.

Mary Newgard, partner and senior search consultant for Capstone Search Group, a national recruiting firm for the insurance industry, says today’s job market favors employees and applicants.

“Don’t kid yourself thinking that you don’t have competition,” Newgard said. “It’s a candidate’s market.” Agencies right now can struggle to find as few as five solid candidates to interview for a position. I think they are lucky to find two (good ones),” she said. “And if you find two, you better be willing to make a decision quick because those two candidates will each have three offers going at once.”

That’s the reality she sees in today’s agency job market.

It’s not just finding people that keeps agency owners awake at night, said Al Diamond, founder of the Agency Consulting Group Inc., a consulting firm for independent agents.

“Agency owners lose sleep over whether they’re going to keep the employees they have, or not,” Diamond said.

While money is certainly an important factor in job satisfaction, culture, feeling appreciated and a sense of fairness from management can be just as valuable, according to Diamond.

For one, employees do not like agencies where “everybody gets the same raise,” he says, “no matter how small or large the agency is.”

Employees are looking for a well-rounded compensation program that includes fair pay, solid benefits and other non-monetary perks. But what that is can vary from business to business.

“One of the things I’ve learned is that compensation plans really aren’t off the shelf,” said Eric Hallinan, vice president at MarshBerry, an insurance industry merger and acquisition and management advisory firm.

Compensation should be a mixture of several key factors, all working together. What works for an account executive in one agency might not work in another, he said.

The same might be true for producer compensation and commission structures. “You might have something that works really well in one firm but doesn’t work very well at another firm,” Hallinan said.

Agency culture or other non-monetary factors also influence the level of employee satisfaction, Hallinan said. “People need to like who they work with and they need to enjoy their day-to-day tasks,” he said.

Employees need positive recognition and want to work toward meaningful goals. “Goals that are beyond just the things they’re doing within the organization,” Hallinan said.

While some of these factors may be hard to quantify, they can be just as valuable to a top employee as competitive financial compensation.

Show Them the Money

While non-monetary benefits matter so, of course, does the money.

Newgard, says top candidates aren’t the least bit shy about demanding higher pay upfront. Higher pay is a fundamental reason employees might stay in a job or decide to change jobs, she said. And they’re not apologetic about it at all, she adds.

“That doesn’t mean that every time you interview a candidate, or every time we speak with a job seeker, that the very first word out of their mouth is, ‘I want more money.'” But it does mean that if an agency wants to maintain a high success rate in recruiting and employee retention, then the “absolute, number one thing that is going to seal the deal” is money.

The hurdle for hiring managers has changed, too, she says.

“Companies used to say, ‘How can I get away with paying the least amount to accomplish my goal, to accomplish my retention, or for my new hire strategy?’ They can’t do that anymore. Now what they have to say is, ‘What is it going to take for me to accomplish my goal and what kind of financial investment will that take?'”

Agencies are always looking for the best talent, but in today’s candidate market, they are lucky to find any “talent,” she said. “There’s such a shortage of talent, that talent at this point is talent.”

Time is money when it comes to hiring.

The time it takes to fill critical service roles is increasing, leaving some agencies to hire wherever they can, Newgard said. Only a few years ago, agencies could fill an account manager or CSR role in 30 to 40 days. But today, agencies are struggling to fill a $50,000 to $65,000 client service role in four months.

“That’s a substantial hike in time to fill,” she said. “What they’re doing now is they’re saying, ‘OK, if I find somebody who is good or excellent, I’m not differentiating those when it comes to money. I’m going to pay what it takes to get them.'”

There’s been a shift from money being just another hurdle for hiring managers to overcome to money being the primary mechanism that ensures agencies accomplish goals in hiring new service talent, according to Newgard. “In order to get what they want, agencies have to pay for it,” she said.

Producer Pay

On average, producer commission structures have remained stable, according to MarshBerry.

“In looking at our own compensation survey, the average rates across the country showed that 40 percent commission on new business was fairly standard and 33 percent commission on renewal business was the average,” Hallinan said.

However, he added there is more variation around renewal commission rates than new commission rates.

“Most of the largest firms and the big brokers and the ones that are doing a lot of the acquisitions, tend to utilize a 20 percent or 25 percent renewal rate,” he said. That may seem low in comparison to what traditional independent agencies are giving producers, but the trade-off in large firms is usually more service and service people, or even higher qualified service people helping producers. “That way, producers can focus on sales activities and not be bogged down by service activities.”

Hallinan warns that while higher renewal rates may entice a producer to take a job with another agency, that extra compensation cost could impact the agency’s profitability and possibly make it more difficult for agencies to invest in new resources or new people. “So there is some logic to having lower renewal rates, but it has to be in balance,” he said. “You can’t have weaker service and weaker profitability.”

Hallinan has been watching how agencies are handing the cost of value-added services in their compensation. “It’s a trend that’s becoming more and more common, especially among employee benefits-related insurance firms,” he said.

“Does the company just absorb those costs as part of the ability to get the clients? Or do they try to adjust the amount that might be paid to the producer based on what’s being spent in terms of value-added services?” he asked.

Hallinan sees agencies trying to figure out how to solve that cost. “Maybe they take the gross commissions received and subtract the value-added services and then use that to calculate what the producer would earn on their new business or renewal rate.” Those types of formulas are entering producer compensation more than in the past, he says.

Incentive Compensation

Hallinan, Diamond and Newgard all tend to agree that the best agency compensation structures have some element of incentive compensation for employees outside of production roles.

“Compensation plans that include incentives that are all in alignment with the agency’s goals, or at least they try to be in alignment, and where you see things like producers and service people when their compensation incentives all wind up with the growth in the book of business…that tends to create an environment where the culture and everything is a little bit more aligned on those broader strategic initiatives and broader growth initiatives for the agency,” Hallinan said. “When I see that, I like that. It’s a little bit easier to work with.”

But that structure hasn’t made its way across the entire independent agency landscape, yet. “Lots of agencies don’t have that,” Hallinan said. “Lots of agencies still have incentive programs that are totally discretionary and that’s harder for an employee to know what their bonus might be; what it’s based on.” It’s better when bonuses are tied to the success of the agency.

Diamond, who has been an advocate for incentive-based compensation for non-producer employees for many years, says he has seen increased demand for it today.

“The programs that we find most in demand for us are producer acquisition and compensation, and incentive compensation for non-producer employees, which is very much in demand,” Diamond said.

However, he admits that many agencies “pay lip service” to incentive compensation. “Owners still try to control it (compensation) and that doesn’t work anymore,” he said. “Employees are too smart; they know they have other places to go.”

The best agencies, in Diamond’s opinion, are those that pay people on a productivity basis, not on a longevity basis. “Their producers are supported, instead of having to go out and find their own business. The agency does all the marketing, and they tell their producers we will give you all the prospects you can possibly handle.”

If the agency is growing, then the compensation of staff should be growing as well, Diamond said. “So, if I’m a customer service rep, and last year, I serviced a book of business that was $250,000, and this year, I’m servicing a book of business that’s $350,000, I am more valuable. I am helping the agency generate more revenue without hiring more people, and I should be paid more,” Diamond said. “That’s what our incentive compensation program is based on. It’s based on productivity, not longevity, and that’s where employees feel cheated most.”

Don’t be shy about out-of-the-box compensation perks, either, Newgard recommends. “Anytime that you can take something that employees already have to pay for out-of-pocket and roll that up as a perk,” consider it as a mechanism in compensation plans. It can be anything from paying for highway tolls to paying for their cell phone, she said. Little things like commuter benefits, even paying for business attire or making charitable donations can make a huge difference in satisfaction, she said.

Hallinan equates agency compensation plans to that of solving a jigsaw puzzle — every piece counts just as much as the next, but knowing where to fit each piece is the real challenge.

To win, agency owners must understand what their employees want and need, and ask them. “Find out what motivates your employees and structure your compensation plans around that to retain the best talent,” he said.

About Andrea Wells

Andrea Wells is a veteran insurance editor and Editor-in-Chef of Insurance Journal Magazine. More from Andrea Wells

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