ACG - Agency Consulting Group


A national monthly newsletter for agency principals dedicated to agency management topic

Incentive Compensation Programs

Many agents have asked us to help them create incentive programs. In order to do this we must first explain the difference between Incentive Programs and Incentive Compensation.

Incentive Programs are individual or team incentives to meet or exceed specific goals, usually production, retention or financial. Incentive Compensation converts your current compensation program from salary based to one based on successful completion of the functions of the specific position. Incentive Compensation is the way the employees earn their regular paycheck. Incentive Programs is a way to provide bonuses for efforts above and beyond expectations.

Here are the steps to follow to create a workable Incentive Program.

Define the objective of the Incentive Program. State it in one sentence and get a consensus that this is your or you management team's objective. The statement could be,

"The objective of the Incentive Program is to reward individual performance above and beyond company goals and expectations for that job."

"The objective of the Incentive Program is to reward the Marketing Representative for successful placement of at least 80% of submissions in any month."

"The objective of the Incentive Program is to reward service employees for exceeding 90% retention of accounts in any month."

You can only create a functional program when you and the team know exactly what wants to be accomplished. There are a few obvious "don'ts" here.

* Don't create an incentive program to try to get people to do the job for which they are hired at a level of performance considered average (or to budget). This will just strain your financials.

* Don't reward mediocrity. Giving incentive bonuses to people who don't deserve them actually demoralizes the good performers.

2. Make the Plan reachable and achievable. It is of no use to reward performance at $1 Million production when it is unlikely that production will even reach $750 K. This demoralizes the team and they will lose interest in the program almost immediately. Be wary of goals in excess of probability (or possibility).

3. Provide the rewards in short term spurts. Employees will keep "up" if they know that their rewards will be gained at the end of the month. They will have trouble maintaining their enthusiasm if the rewards will not appear for months or quarters.

4. While you may consider Team Goals to qualify the group for incentives, measure the incentives based on individual performance. Team Goals protects the agency from excessive incentive payout when the company's goals are not achieved in the period. However, some employees may not warrant incentive bonuses as much as others.

5. Remember, if your objective is to make your team perform better as a group and want to give them a bonus at the end of the year for achieving or exceeding the company goals, that is called Profit Sharing. If they exceed the company goals, we fully expect the company to make more profit than budgeted. You can justify bonuses based on that alone. However, don't confuse profit sharing with Incentive Programs (or Incentive Compensation, yet another animal).