A Rewarding Strategy.

Agents and brokers are controlling costs by shifting more compensation dollars away from annual increases and into incentives and bonuses.

No matter where I go in the United States, agents and brokers are frustrated by the fierce competition for insurance employees. Even with the recent economic downturn, it is still extremely difficult to fill job openings, and experts predict that the competition for insurance professionals will continue for another decade.

The challenge for agencies today is not just in finding job candidates, but in making them a good offer. They struggle to define salaries and benefits that are fair, yet not unreasonable to the agency's cost of doing business. And with the cost of replacing an employee ranging from 100% to 150% of salary, they wrestle with the total package they must offer to retain their existing employees. In fact, some agencies set a goal for employee retention, as well as for account retention.

To provide our clients with current information on compensation trends, our consulting firm recently conducted its seventh national survey of compensation trends in independent agencies and brokerage firms. Participants were agencies and brokerage firms in various revenue ranges and in each major region of the country. Participants were asked about salaries paid for 32 separate nonproducer positions, as well as information about incentive plans, benefits and other perks.

We found that the agency-compensation plans today have changed since our last study in 1999.Agencies and brokers are more focused on controlling compensation costs while also providing meaningful total compensation plans to their employees.

Many agents and brokers today seek to control costs by shifting more dollars away from annual salary increases and into incentive and bonus rewards. For many agencies, salary increases are remaining the same or declining, while incentive arrangements are providing employees the opportunity to earn additional income above their base salaries. Although bonus incentives typically were offered to managers in the past, they are now increasingly offered to all employees. Eighty percent of our survey participants offer incentives to managers, and 75% offer incentives to nonmanagers.

We also found that bonuses are more likely to be tied to agency strategies, such as growth, retention or productivity. The method for paying these bonuses is now less likely to be discretionary and more likely to be a reward for meeting specific goals and tasks.

We learned, too, that benefits are being geared toward meeting employee lifestyle needs. As employees are trying to balance their work life with the demands of their personal or family needs, agencies and brokerage firms are offering their employees more flexible benefits and work schedules. Paid sick days and vacation days, which were the norm in the past, are being replaced with paid time-off plans. These give employees the opportunity to use the time as they need to meet their personal needs and result in fewer unplanned absences from work. Flexible work hours, once an uncommon arrangement in agencies, now have become more common than the standard work hours of the past and are an expected perk to many employees.

Other areas, which are receiving ongoing scrutiny, are insurance, retirement and educational benefits. Some agencies survey their employees periodically to determine how important these components are to them. In response to their employees, some agencies are putting fewer dollars into paid compensation, while providing more generous benefits packages. In an effort to retain managers and technical talent, agencies are offering long-term incentive plans to these individuals.

These findings reflect the trends we see in our consulting work with agencies and brokers. As the industry competes for talent, it is responding to employees needs for more motivating and meaningful compensation. In our interviews with employees, they also are asking to participate in the success of the agencies where they work. The response to that interest is shown in the trend to align employee performance more closely with agency growth and profitability goals and to reward individuals for their contribution to the agency's overall success.

We believe incentive methods will continue to evolve as agencies and brokers seek new methods to build strong organizations and retain the best talent. The industry will continue to design plans that focus managers and employees on what is important to the business, while also rewarding those performers who help it to achieve its goals.

Sharon Cunningham, a Best's Review columnist, is president of Business Management Group, a management consulting firm based in Hartford, Conn.