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Insurance Industry Compensation
Because of the recent economic upheaval caused by the problems within the financial community and some large insurance companies, the insurance industry in general is being “tarred and feathered.” With much uncertainty, what can you do to hang on to your experienced producers and continue to recruit new talent?
Historically, the insurance industry developed highly leveraged incentive plans without any caps or restrictions on how much an executive or individual producer would earn. That was a basic element of “capitalism”; however, the recent problems have highlighted the need to ensure that the pay programs don’t outstrip their own financial capabilities or cause and reward a disproportionately high amount of risk.
Compensation Resources has considerable expertise working with the insurance industry in both good times and some unfortunately bad times. What we have learned from many years of experience in the industry is that compensation is still a critical piece of the puzzle that drives the desired performance. Our familiarity extends to mutual and stock companies, brokers and agents, and this involves P&C, life, health and welfare, as well as re-insurance, workers’ compensation, other specialty insurers, and even companies in “workout.”
There are five things that every insurance company should do to ensure that its compensation programs will stand up to critical scrutiny and conform to best practices. These are as follows:
- Re-examine the company’s compensation philosophy. Are the peers appropriate? Is too much of the total reward package (TRP) at risk? Is the philosophy consistent with the company’s business plan and strategy? Is it consistent with best practices, good ethics and all legal requirements?
- Review all of the pay programs to make sure the plans and procedure for determining pay are properly documented.
- Ensure the administrative process provides accurate and timely data on what is being done and by whom.
- Establish adequate checks and balances to ensure that risk is understood and properly acknowledged, and that the incentives do not foster bad or illegal practices.
- Model new programs before implementation, and monitor all programs once up and running to determine if expectations are being met or if any unintended consequences or risks are being created. Identify if there are any aspects of the pay plans that could be problematic.
This is one of the most visible and controversial areas; therefore, it is the executive compensation area that should be addressed first to make sure it is within the boundaries of best practices and meets all legal and ethical considerations. A major question to be asked: Are the executives worth the money they make? Is their pay consistent with the value they have created for their shareholders and stakeholders? Is it consistent with the pay and performance of their peers?
Our consultants have considerable experience supporting boards and their compensation committees in the design and implementation of creative and highly effective pay plans that focus attention on both the company’s tactical and strategic results. These plans must comply with an ever-increasing number of often contradictory federal, state and SEC and similar industry regulations.
Another law that is critical in plan design is the “Law of Unintended Consequences.” In other words, if not considered and controlled, the new plan can drive the wrong kind of performance and cause problems that far exceed the benefits that were intended. We offer tailored programs that recognize these potential issues, and avoid them through inclusion of features that are specific to the insurance industry specific.
Executive compensation actually consists of many separate components that must work together to offer a total rewards program. These components include a mix of base salary, short-term and long-term incentives, perquisites and supplemental benefits, and various employment, severance and change of control agreements.
Insurance Sales Compensation:
Motivating your insurance sales force to grow the business is a key success factor to every insurance company and broker. Our consultants have experience at both large multinational insurance companies and small family-owned brokerage houses. Our team can help your organization identify the issues and impediments to growth in your insurance brokerage, and design individually tailored sales compensation programs to drive sustainable growth in the organization. Since sales personnel come in all sizes and shapes, we can assist with the design of easy-to-understand incentive programs that foster a culture of selling and entrepreneurship for inside and outside salespeople, as well as back office support staff. As with all of our programs, we will customize our products to fit your company’s individual structure and needs.
Sara Schmidt, CCP, PHR, SHRM-CP