Many times we are asked about Producer Compensation plans and what is available in the marketplace. In response we have put together some general notes for your reference....
White Paper – Examples of Producer Opportunities
Note: the following are examples of Producer Opportunities that exist in the marketplace nationally. This paper is to be used as an example of what might be developed in any given region for a producer or producer group. Remember to review all possible plans with a view on the “front” (sign bonuses, book purchases); “middle” (compensation to produce business, commission on referred accounts to other units, etc); and “back” (equity plans, deferred comp plans, profit share, etc).
1. National Brokers – This group pays a salary and year end discretionary bonus and that total is usually based on 20% or less of the books revenue. This group pays the lowest % of book revenue to the producer but does this due to the cost of added value services that are needed on Risk Management accounts. The firms might offer a sign bonus to attract the producer and on the back end might offer a stock grant bonus based on production levels. The real question to ask when working for these firms is – do my accounts need the added value services and do I use the services that I am paying for. If the answer is yes, then this is the place for you but if the answer is no…you need to consider other options.
2. Second Tier National Brokers – This group uses a salary and pays a bonus based on a new and renewal commission split. That split is usually in the 35% new and 25% renewal range and the “even-up” period can be quarterly or annually based on the specific firm. Note that new and renewal splits will vary from firm to firm but our in this basic range. This group will also pay sign bonuses to top producers and on the back end will offer stock grants for top performers. A few of these firms also have a “pot of gold” to split up at year end if local, regional and national goals are met. This is a bonus pool for top performers. As many of these firms are public entities, we do not see a lot of equity plans or deferred comp plans in this group.
3. Bank Owned Insurance Agencies – Bank owned firms can be national organizations, regional firms or local agencies based on the size of the parent company. These firms tend to match the Second Tier National firms in terms of pay structure (usually a very limited back end) but tend to push account rounding opportunities with the bank’s loan officers as their major selling point. If that is an opportunity, you need to look at the commercial loan book at the bank and determine if that mix of business matches your insurance production skill set. An important point to remember when reviewing a bank owned agency is – as a non core business unit will the bank stay committed to growing this sector or will they sell it in the near future, and does the bank manage the agency or do they leave that to an insurance management team and then look to get a specific return on their investment. There are very strong players in this group and very weak players, thus review carefully.
4. Large Regionals - I classify this group as brokers in the 25 million to 500 million range. This group can be independently owned, bank owned or owned by another type of financial institution (i.e. PEG Firm) and this becomes an area where the pay plans start to vary greatly. Pay plan examples in this area that I have seen include:
a. Front – combination of cash and stock as a sign bonus; middle – salary and bonus based on a 35/35 commission rate; back – stock grants based on production and a deferred comp plan (producer vests in a portion of their book and that “position” is purchased back at death, disability or retirement at a specific multiple of revenue over a given number of years). Note that there is usually a retention basis to this plan. 5. Local Firms – This area can include very small brokers and might run to the firms with 15-25 million in revenue. This is the group that will push the new and renewal commission rate and we tend to see 40/30 as an average commission in this sector but note that commission plans in this area are “all over the board” as the producer is asked to bare more of the duties in producing and servicing the book. This group tends to back off on the signing bonuses and book purchases due to limited cash flow but will be more aggressive on the back end with deferred comp plans. We even have one client that has moved to create a deferred comp plan that is guaranteed thru a life insurance product. This plan pays 2x book value over 10 years at retirement and is not tied to retention which is a huge plus to the producer.
b. Front – book purchase; middle – draw vs. commission using a 40/25 new and renewal split; back - an agency stock “gift” plan where the producer earns awards as their book reaches certain levels. In these cases the firm acts as the broker/dealer and there is an outside valuation to determine the firm’s stock annually.
c. Front – sign bonus or book purchase or nothing; middle – producer or producer team is set-up on their own P&L and is responsible for managing their own income and expenses. An identified % goes to the producer group, to the fixed costs and to the firm…and then any over and above is split between the producer group and then firm (the profit share); back – the profit share mention early on the over and above is usually the back end but this can be combined with other items such as an overall stock program.
Again, when considering a move think in terms of how the offer is structured in terms of a “front”, “middle” and “back”. When comparing plans, add all of the cash compensation that is paid on production (salary, bonus, commission) and find the real percentage that you are being paid on your book. If there are charge backs, you need to factor that in as well to come to the correct percentage you earn off the book of business. If an equity or deferred comp plans is offered, run a projection on that plan and see what that “retirement income stream will be” and understand all of the qualifiers on these plans.
To discuss this information further, please call Dan Rogan, President, The Rogan Group, Inc. at 800-440-0082 or email firstname.lastname@example.org