Using Deferred Compensation Plans to Attract Insurance Producers
Are you thinking about hiring producers for your insurance agency? Are you worried about the return on investment and whether they will stay long enough to recoup that initial investment? A Deferred Compensation Plan tailored to the producer might help attract that top talent and also act as “golden handcuffs” to keep them long term and to eventually transition the book within the firm.
Over the last few years, our recruiting firm has worked with a number of firms that have created such plans. These plans allow the producer to create a phantom equity position and an income stream in the first few years of retirement. The plan also allows the agency to motivate the producer for continued production, lock in the non-compete and ultimately transition the book within the firm.
The standard plan that we see in the market looks as follows:
- Insurance Agency Producer Deferred Comp Plan Example Structure
- Vesting starts when the book is $500,000+ in revenue (the trigger).
- The producer is fully vested after 5 years.
- The vested position is equal to 50% of renewal book value.
- The vested position is a deferred comp plan; there is no “ownership” in accounts.
- Vested pay-out starts at Death, Disability, or Retirement.
- Vested pay-out is 10% of the renewal book per year for 5 years (equals 50% of the book).
- Pay-out is on a retention basis.
- The non-compete must be in place for pay-out to occur.
- Retiring Producer must assist in the transition of book to a new producer.
- Agency hands-off book to another house producer or uses the book to recruit new talent.
- Agency pays a reduced renewal commission to a producer who inherits book (usually 15-20%).
- Total renewal pay-out (retiring producer and new producer) equals the standard renewal rate.
Again, this type of plan provides an incentive for the producer to build the largest book that he/she can while employed as it will increase the retirement pay-out they receive. It also acts as a recruiting tool for future producers (they can inherit business), creates a smooth transition for books of business (the retiring producer is motivated to see the business stay on the books due to retention basis of the program) and it locks in all non-compete contracts (acts as consideration). Note that it does all of these things, while not increasing the renewal commission cost to the firm. Seems like a win-win for everyone involved!
Finally, after the pay-out period is complete…the agency would recognize a 10% reduction in expenses associated with the book as the pay-out to the retired producer would stop, thus increasing the pre-tax profit of the firm.
We would suggest you speak with your financial consultant prior to enacting any such plan and we wish you success in your recruiting.