Most agents face a decision at year end regarding employee bonuses. While notoriously generous when times are good many of us are also fickle, either giving everyone the same bonus or basing bonuses on how we feel about the employee at the moment (hero or bum).
While generosity is a virtue, the same is not true of granting bonuses when the agency will need the funds for capital improvements or for additional personnel in the near future.
The Christmas Bonus, the Year-End Bonus, Birthday Bonuses, the Guilt-Driven Bonus (when we don’t pay our people enough during the year from a competitive standpoint) and all the other discretionary bonuses are tools of yesteryear. While Baby Boomers grew up with these expressions of paternal largesse and even Gen X (1965 to 1982) appreciated and expected these expressions, Gen Y (the Millennials 1980-2000) and, certainly, Gen Z are more directly influence by achieving compensation levels that are sufficient to support their families than by scrimping through the year to recover through a year-end bonus.
They see year-end bonuses like many agents view contingency payments, appreciated expressions of money that they should have earned by virtue of their work effort during the year. Many underwriting agents who are proud of their loss ratio performance have consistently asked their Companies to consider increasing standard commissions and eliminating the once-per-year contingency payments as over-complicated and hard-to-predict but, basically, payments for loss experience under the Company’s average – true “profit” sharing by the companies. Similarly, many employees who know they could get more money if they move to another employer wait for year end when (they hope) they receive sufficient bonus money to bring them to parity with their competitors in other agencies in the area.
Over the last 25 years we have espoused the ICP (Incentive Compensation Program) that puts the control of their compensation in the hands of the employees, themselves, based on pure enhanced productivity as the determining factor of their salaries. This separates the High Performers from the mediocre because as the High Performers continue to motivate greater productivity (usually in terms of retaining more clients and servicing a larger commission book of business), they achieve much higher compensation than their less productive compatriots. If the agency must lose employees, let them be the low impact, low productivity staff members who you would rather do their minimal jobs for your competitors than for you. If you hire only the high performers and expect them (and pay them) according to their productivity gains each year, you will need less people, you will pay them more and you will simultaneously earn greater profits for your efforts.
Embedded in the ICP (Incentive Compensation Program) is the termination of all bonuses in traditional terms. You don’t need to give employees either different or similar annual bonuses if you pay them what their productivity earns during the year. And, if you happen to have more money than you expected at year end, giving true gifts is a better expression than cash anyway.
Too many of our employees need the cash to pay bills. Eliminate that problem by paying them right through the year and you can now express your gratitude for their loyalty through more individualized expressions of your loyalty as well. Giving them a few “extra” days of vacation and a couple of cruise tickets may cost you the same as a nice bonus of a few weeks to a month’s pay and they will actually use the bonus for its intended purpose, to decompress and get to know their spouses again. Replace the cruise tickets with airline tickets to someplace warm in the winter and you will gain a lot more gratitude from the employee that a check or cash will elicit in the long term. And these expressions are more personal than money.
Consider replacing your standard bonus with something more personal and tangible this year.
And, don’t forget, if you don’t have the money in the coffers at year end, you can still give gift cards to local stores, restaurants and theaters and sponsor several ‘nights out’ for your employees and their spouses by paying for child care, as well. Talk about appreciation….
We wish each and every agent and agency staff member out there a great holiday season, whatever your religious persuasion. Let’s not make it merry or sad based on the size of a bonus check.