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Pay for Play

Many agencies have provided levels of financial security for their producers (owners and employees) by guaranteeing them a salary, draw (with no financial pressure for returns if not earned) or other form of regular compensation. During strong times this works well. During soft or slow periods this process will always reflect the weaknesses of producers who do not live up to their potential (or expectation).

Abraham Maslow introduced his concept of Self-Actualization as the highest level of human behavior needs in 1934. The Physiological needs are for survival — food and water. Another critical need is for Safety and Security — a home in a safe environment, some job security, some retirement expectations, a ‘nest egg’, etc. Love is really the ‘belonging’ need that involves relationships, family, career, community (religious, recreational, political). Esteem involves two forms — a lower level that is earning the respect of others, status, fame, recognition, dominance — and a higher level — self-respect, confidence, competence, freedom. Finally, Self-Actualization defines the position that only a few percent of the population achieves, the desire to fulfill their own potential and to ‘be all that they can be’.

You can’t be in a higher position on the Hierarchy if you have issues involving the lower positions. This means that someone who doesn’t know where his next meal is coming from is less likely to be concerned with Esteem and Love issues and may not even be concerned with Safety issues in the all-encompassing effort to survive.

Producers and insurance agents may be in any of the Hierarchy positions and may not stay in those positions permanently (shifting up or down in good times and in crisis times).

When you guarantee a producer’s compensation, you are eliminating one more block to the higher levels. He knows that he will be able to pay his bills and keep his house (levels one and two) and that he has job security and a career. He may or may not feel appreciated or have a feeling of self-worth (level four). And, if he has successfully traversed all four levels, he may be approaching or in Self-Actualization in which he is no longer concerned with the banalities that he knows he has overcome and wants to genuinely help people with his expertise – just because he can and should. These folks often devote their time to charities and the community – but they’re the ones who do it anonymously and avoid publicity for their good deeds.

But what happens when a producer fails to live up to his (or your) expectations of performance and does so consistently enough that income becomes more than you can afford to pay him for the efforts or results he is accomplishing?

That is why a ‘Pay for Play’ plan (incentive compensation) is always better than any guaranteed compensation plan.

Under an incentive compensation plan, you may still provide a consistent income to a producer. However, it is based on his prior year performance (or the expectation of performance in the current year for new producers) and it is NOT guaranteed. He must achieve certain results in order to keep his compensation stable. Of course, performance in excess of expectations may still provide bonuses for producers as added incentives and rewards.

My first gauge of performance for producers is ACTIVITY – not RESULTS. Achieving projected strong activity (physical sales calls – not phone calls) will cause expected results – if the producer a) knows his insurance products, and b) knows how to sell himself. Achieving strong activities on a consistent basis also defines self-motivation. Only the individual can motivate himself (or herself) to do anything. Sure, you can yell, scream and threaten producers to do something on a onetime basis. But these “motivators” are no more effective than they are for your teenage children (need I say more?). Only the producer him(or her)self can get themselves up and to the next prospect in the morning. If they are not self-motivated, then they reside below level three of the Hierarchy and are using the job to pay the bills – no more.

So in the Pay for Play Plan, we set activity goals for producers every month. If they don’t live up to those activity plans for two consecutive months, their compensation is reduced by 10%. If they continue to perform below their activity expectations their compensation is reduced again in subsequent months (because the next month ends another two-month period below activity goals). If they regain the correct activity level, they retain their compensation level. If they make up for lost activity in subsequent months, they can regain higher compensation levels (up to the original monthly compensation). If they achieve activity levels up to their year-to-date expectations at the end of any month, they will have regained their original monthly compensation level. AND, if they also meet their NB Sales Goal, the agency gives them back (in one lump sum) any amount that they have lost during the year due to lack of activity level.

If you notice, sales and commission generated does not affect monthly compensation directly. If they hit a ‘home run’ – a single large account (whether fluke or through hard work) that exceeds their YTD NB income goals, they may qualify for a production bonus, but their monthly compensation is activity, not results, based.

Agency Consulting Group, Inc. can help design a ‘Pay for Play’ plan tailored for your agency. Call us at 1-800-779-2430 for more information and to speak to Al Diamond about Pay for Play. Visit our web site at www.agencyconsulting.com.