Get Your Comp Structure Solid 

More and more, compensation structures have become a critical piece or an agency's value. Elements such as revenue generation, overall budget allocation, productivity levels, transferability, and long-term strategic planning all factor into establishing a compensation model.  Mistakes made during its creation can lead to numerous challenges, notably the lack of revenue-generating incentives, and the potential to sell your agency at a discount, both of which represent significant risks. Creating a scalable compensation structure early on is crucial to your agency and without it, the entire agency you have worked so hard to build is at risk.  

Compensation Impacts Profitability  

Although staffing represents one of the largest components of the overall budget, it is crucial to understand that various other operational expenses also influence the success of an agency. Investments in technology, processes, tools and more go into supporting the productivity of a successful agency’s operations. 

A metric that we will often look at to determine if compensation is aligning correctly in an agency, is productivity. We calculate agency productivity based on revenue, employee compensation, and spread per employee.  When comparing these numbers, we have a good indicator to know how compensation is related to the overall productivity of the agency, allowing us to determine whether adjustments to productivity or compensation are necessary. 

Impacting Your Sale  

It is important not to stray too far from a standard compensation structure and to ensure consistency with local compensation benchmarks. During the acquisition process, misalignment in compensation structure can create challenges, leading to delays or even the loss of a deal.  Aligning with industry and local benchmarks signals to the buyers that the agency is well-positioned, demonstrates operational efficiency, and offers a lower-risk investment, all of which are attractive to prospective buyers. 

As a buyer, two of the largest factors to consider surrounding a compensation structure are its potential for seamless integration and employee retention. If compensation is too high, the potential for retention to drop will occur if the buyer seeks to adjust to standard norms.  If the compensation is too low, the agency is considered a high-risk acquisition, lowering its valuation due to the employees' turnover risk.  

Long-Term Planning  

Should you find yourself questioning whether your agency's compensation structure meets these criteria or if you are unsure, there is no need for concern. AgencyFocus offers compensation analysis and planning to help you right the ship. An analysis will provide strategies that can be used gradually to avoid disruptions. Each of these strategies is well-researched, defined, and should be evaluated and monitored regularly.  Effective communication with key personnel is crucial when transitioning to a new structure and clearly explaining the reasoning behind changes is essential for success.  

Whether or not you are preparing for a sale in the near or even in the distant future, there are plenty of reasons that your agency should look at aligning compensation to industry standards. The compensation structure should be able to evolve with the agency and the employee’s success while creating a culture of accountability and performance. Without the proper structure, you could be discouraging the performance you are looking for in your employees. The opportunity cost of this alone is enough to look and see if there are adjustments you can make to your compensation structure.  

This is Emotional  

Some agencies take the approach of offering high base salaries without commission structures, believing good salespeople will naturally perform well. This approach, while potentially attractive from an overhead and ease of payroll perspective, may not be as attractive to a salesperson who is hungry. It may also be missing a key component that drives the performance of revenue-generating staff. A balanced compensation structure with both base pay and performance incentives tends to encourage more proactive selling behaviors and creative problem-solving.  

Agency owners who are intentionally thinking about their compensation often also share the intentionality of and employees’ compensation with them.

Billy Wagner, Agency Owner of Brightway Insurance shared “The biggest expense in any business is compensation, so it’s crucial to have an expert’s guidance in auditing and planning”.

Employees' pay is incredibly personal and emotional, without an outside perspective, it’s incredibly hard to take the person out of it and look at compensation objectively. Bringing in outside help can be a huge help in the process of adjusting compensation in your agency.  

 Having a solid compensation structure sets you up for success and avoids problems with profitability or the potential sale of your agency. An industry-aligned structure will help your agency now and in the future by attracting top talent and continually motivating them to perform at their best.  

If you are concerned about your agency's current compensation structure, we encourage you to reach out to our team. We would be happy to conduct an analysis to identify the strengths and weaknesses and develop a plan to strengthen the alignment of your compensation structure.