This may not be well known, but many agents that work for an insurance agency or brokerage earn a commission when they sell a policy. For some, this commission can comprise the lion share of their overall compensation package. When it came time for Square One to devise our agent compensation package, we decided against offering commissions to our employees. The reasons behind this are threefold:
- It’s human nature to focus on what’s measured. If someone is incented to make a sale, they’re going to do everything in their power to make that sale, even if it’s not necessarily in the customer’s or company’s best interest. For example, one side effect (that I’ve personally witnessed) is that an agent can be quick to assist new customers while ignoring existing customers who wish to make policy changes because policy changes won’t result in additional commissions for the agent. This results in poor customer satisfaction and, ultimately, low customer retention. A common short-sighted approach to addressing this issue is to make the incentive program more complicated so that it’s not just based on new sales, but a variety of other factors. While this sounds reasonable in theory, the reality is that some things just aren’t that easily measured. Plus, you’ll always get at least one bad egg that knows how to game the system, finding ways to optimize his/her commission.
- At a previous employer, we found that an inordinate amount of time and resources were allocated to the management and distribution of commissions. In fact, this company had 2 full-time staff dedicated to ensuring all the various inputs were fed into the system correctly. The company also spent hundreds of thousands of dollars building a system to manage the compensation program. In our opinion, this “overhead” generated very little benefit for the customer or the company.
- We find that the type of people we like to work with aren’t necessarily motivated by higher pay. Obviously, you need to pay people enough that they’re not anxious about money, but once they’ve reached that threshold we find other factors are more important to build staff engagement. Things like respect, autonomy, and a great work environment. Thought I’d post a video that really sums up our thoughts on this topic:
At Square One our business strategy is to generate a lot of our business through customer referrals, and the only way that’s going to happen is if our existing customers are really satisfied with us. Since our sales staff are our primary interface with our customers we want to make sure their #1 goal is customer satisfaction, not earning commissions for themselves. Another key part of our strategy is to keep our operating costs low, so we can pass those savings on to our customer through very competitive prices. We can’t afford the overhead of a complicated incentive program. We want our programmers focused on building enhancements to our website and online account area, not building back-office software that creates no business (or customer) value.
For all of these reasons, we’ve decided against commission based sales agents. If you’ve dealt with Square One, what do you think? Any feedback on the service our agents are providing? If so, we’d love for you to post a review.