ACG - Agency Consulting Group

The PIPELINE

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

COMPENSATION AS A STATE OF MIND - Employees as Tools or as Assets

When we created our Incentive Compensation Program (ICP) we did so to convert insurance agency compensation for non-producer employees from the subjective, merit-based or longevity-based form of compensation to a program that pays employees for their productivity to the agency.

We found thousands of insurance businesses paying employees based on longevity alone or based on how the manager/owner felt about the employee's value to the Company when raise time came about. We found many agencies paying their service and administrative employees at the same rates regardless of their true value to the agency for the sake of “equality”. The agents were afraid that they would lose employees if some were paid more than others. There was no consideration of how productive or how much actual value was returned by each employee for the dollars spent, primarily because there were no metrics that provided that value picture to the agency owners. As you can imagine, motivated employees, seeing the non-motivated employees getting the same raises became less motivated and the agencies were consequently much more likely to lose their best employees than their worst as those strong performers felt cheated because of the pay equality exercised in the agency.

But even as we converted agency after agency to a much more objective ICP we found a strange level of resistance from the very agency owners who, intellectually, understood the value statement that “different employees have different values to the employer based on their productivity to the business”.

The agency owners, themselves, differed in their states of mind regarding how they valued their employees.

This attitude difference points directly to the maturity of the owners and to how they viewed employees.

The Employee as a Tool

Many agents look at their employees as necessary costs to do the work associated with the administration of an insurance agency. They try to find the least expensive employees who can service or administer the transactions for the customers and for the agency. Most of these agency owners are Profit-Centric and Producer-Centric. The concentration of a Profit-Centric business is to maximize the return on their investment by generating the most income for the least cost that still keeps the customers with the agency and the carriers satisfied that the agency is accomplishing the tasks associated with the sales and retention of profitable customers. They are fixated on spending the least to get the job done.

Producer-Centric agencies abound in the U.S. and agents who are in this domain are proud of their concentration. They traditionally value the employees who sell the product and discount the value of the employees who are transaction-based or whose role is to keep the customer satisfied. They overlook any issues or problems with producers as long as they are bringing business into the agency. Their attitudes about those producers change dramatically once they stop generating growth.

So Profit-Centric and Producer-Centric agents look on their service and administrative employees as tools to get the job done. They see value in using the least expensive tools needed that still accomplishes the tasks at hand. So many of these agents neither evaluate nor give raises to employees unless they are asked or pressured into doing so. Why upgrade your tools when the old ones are doing a credible job? They don't replace or upgrade tools until one wears out or breaks. And, even then, they begrudgingly hire replacements and pay more only because the market has forced them to do so.

The Maturing Process – Some Do – Many Don’t

Whether from chronological maturity or because of the bitter lessons learned by hiring the cheapest people available to do the job, some agency owners become aware that they are much better off hiring, developing and paying more for the types of employees who are ASSETS instead of simple TOOLS for agency administration.

This is most felt when these maturing agency owners find management of their growing employee force beyond their personal desire or ability. As agencies grow beyond five or ten employees it becomes harder to treat the employees like “helpers” to the agent, basically doing what the agent does not want to do, cannot do or finds it a less profitable use of his time to do personally. When you have enough customers that you can no longer go out and sell insurance because of the number of daily calls for service demanding your time, you hire “helpers” to maintain those contacts and to do those transactions, allowing the owner/producer to do what is most profitable to him and to the agency. As you build a book of business, you also build a team of “helpers” to service and administer. But once you reach a size that finds you with five, ten or more of these CSRs, Account Managers, and Service Assistants, most agency owners realize that they are now 'herding cats'. It becomes next to impossible to have all the staff handling transactions in the same way. And it takes more of the owner’s time than they can afford to tell the staff what to do on every transaction. Most owners don't enjoy the management process.

So they promote or hire a Lead Worker, a supervisor, or a manager.

If the agency owner is still stuck in the Tool stage of their maturity, they promote and expect the employee to do the same level of work for the agency AND to manage the other employees to consistency and productivity. The owners consider ‘management’ a simple task in addition to a regular job (even though they find it difficult to do, themselves). This rarely works well. The other employees don't want to be directed by someone is their equal and who does the same job as theirs. Nor does it work well to have an employee manage friends.

Eventually the owners realize that true management is a full time job for agencies with many employees and complex needs for service and administration. They are either stuck in their Tool mindset and never find satisfactory managers or they mature and begin to understand the value of productive employees over drones and of real managers over supervisors of work.

Customer-Centric Agencies

The agency owners who mature in their treatment and consideration of their employees seem to always convert their ownership attitudes from Profit-Centric and Producer-Centric to Customer-Centric. A Customer-Centric agency is always aimed at the best interest of their customers. They realize that if they are always customer-centric their businesses seem to thrive and grow, their customers (and carriers) are much more positive about the agency and their production staff treat their employees as team members without whose help they couldn’t effectively do their job. Most agents who become Customer-Centric start treating their employees differently. They are no longer simple tools. They become individual assets to the agency, some more valuable and others less so.

Employees as Assets

The lucky few owners who reach the peak and begin to understand that some employees are more valuable than others because of their motivation and productivity allow themselves and their organizations to develop and mature into self-sufficient entities that grow and prosper beyond the control and the abilities of the owners, themselves. The owners no longer look at either employees or managers as simple tools to get the job done. They now see them as leveraged assets that can make the business more profitable beyond the influence of the owners, alone.

This is when the ICP becomes a useful tool for the agency.

Once owners understand that more productive employees are worth more than less productive employees the ICP becomes a valuable tool for compensation and employee development. Once owners realize that motivated employees who are taught that the more productive they become, the more valuable they become (and the more money they can make), can drive the agency to greater growth, greater retention and greater profits without the constant influence of the owners, themselves, the size of the business takes off.

Some of these owners learn this lesson on their own. A common thread links owners who have learned this lesson. They are in constant wonder for the rest of their careers that the business can become a successful as it has. They never quite believe that they, themselves, were the impetus of their own success by paying staff based on different values of each employee and by hiring and trusting the best managers that they could find and rewarding them based on the key metrics of the ICP, growth, productivity and profitability.

The ICP as the Educator

The ICP is implemented in agencies over several years. We do this because of the culture change required to teach employees the difference between the 'Nine-to-Fivers' and motivated employees. Some employees will remain drones, working the hours required for a paycheck. Even if they become more productive, they do so because of the influence and changes imposed by good, strong managers. Other employees realize that their performance can be measured and can influence their degree of success in their jobs and their careers. In some cases it’s simply a matter of showing them that the more productive they are the more money they can make. In other cases, the employees seek respect, gratitude for a job well done and vertical movement in their careers to develop into more than a processor. In either case, if the ICP and maturing owner/managers provide the vehicle for employee development, the smart employees – the true ASSETS of the business-- will catch on and will be charged to progress their careers (and the agency results alongside their own success).

The strange but natural result that happens as we educate the employees who are most affected by the ICP is that the agency owners, themselves, also mature and are educated by this process.

Initially, the owners grasp the concepts of the ICP because of its logical simplicity – pay people according to their productivity gains instead of simply because they have been there another year. Eventually, the owners begin to understand the value of management and the metrics that are absolute necessities in ICP agencies.

Either the owners, themselves, become true managers of people and workflow or they promote or hire true managers who we tutor into the concepts of productivity and incentive compensation. Either way, as the ICP takes hold some strange challenges make themselves apparent to the owners.

First, some owners rebel (sometimes several times) over the first several years because they are asked to actually pay their employees based on the agency's growing success. Remember, these owners have spent years, decades and, sometimes, generations, thinking of employees as TOOLS, not as ASSETS. And they previously discounted completely the value of dedicated managers. So they ask us if they really have to pay based on productivity gains or if they can diffuse the amounts of the raises, giving employees “some” raise, but not necessarily, as promised, raises tied to productivity gains.

This is the first break-point of the ICP concept and the challenge to the growing maturity of the owners. If they disregard the intent of the ICP, the employees (especially those who understood and were aware of the intent of the ICP) will understand that the owner is reneging on the program and will stop trusting either the owner or the program. The employees are much more intelligent about a program that affects their compensation than most owners believe.

Most owners don’t grasp the progression of the program from its ‘pure growth’ stage through its ‘growth/profitability’ stage and to the final, ‘productivity/profitability’ environment in which the ICP becomes a mature program. They read and understand the concepts intellectually but fail to grasp the hidden fact that the ICP program self-corrects and never pays employees raises that cannot be afforded by the combined growth and profitability of the company.

This, final piece of the puzzle, only becomes obvious in later years of the program as the self-correction formulas adjust raises to department and agency profit levels. The agency always profits more than the employees even though the employees and managers who are performing to desired levels find themselves much more enriched than either their peers within the agency or, certainly, than their peers in the industry outside of the agency.

So if owners fall back to their concepts of employees as TOOLS and lower the ICP rewards, they will risk losing some of their most productive employees if alternatives are available to them. If no alternatives exist the employees will stay in a less motivated position. The owner’s choices will basically restrict the agency's further development based on the limitations of the owners.

Happily the progressive owners who have implement the ICP (and our other progressive programs like the Producer Compensation Program and the Asset Protection Model of Relationship Selling) are more likely only experiencing temporary 'buyer’s remorse' when faced with the reality that when the agency performs well they must pay the employees accordingly. They get over that problem as the agency continues to thrive beyond the direct activities of the owners, themselves. The employees and managers are motivated to do exactly what the owners desire – grow the agency and make more profit. If they don't accomplish that task, they don't get paid more.

But, be warned, the regression of owners may take place two or three times over the first several years of the ICP as the employees and managers are paid higher salaries commensurate to the agency's growth and increasing profit. The owners sometimes forget that when you consider your key employees ASSETS instead of TOOLS, you nurture and develop them as the agency can afford it and they become highly paid and remain highly motivated to continue developing their roles and the agency.

WHAT’S THE DIFFERENCE BETWEEN A TOOL AND AN ASSET? A TOOL IS USED FOR THE PURPOSE FOR WHICH IT WAS PURCHASED UNTIL IT IS WORN OUT. AN ASSET IS AN INVESTMENT. ASSETS WARRANT DEVELOPMENT AND ARE SUCCESSFUL WHEN THEY BECOME EVER MORE VALUABLE. ASSETS MAY GROW AND EVOLVE NEW AND EXCITING USES – TOOLS ARE MEANT FOR ONE TASK AND ARE USED ONLY FOR THEIR LIMITED USE FOR THEIR PRODUCTIVE LIFETIMES.

ARE YOUR EMPLOYEES TOOLS OR INVESTMENTS?