Producer compensation is not a one-size fits all solution when considering the needs of our business and the needs of our producers. To drive and reward profitable growth, we instituted a Pay for Performance program in 2013. It features three core components: segmentation/tiering, performance-based commissions and supplemental compensation. We regularly refine the program based on AIG Private Client Group performance, growth goals and external market conditions.
The concepts behind our compensation program are not new to the insurance industry; many companies have a formal method of scoring and tiering their agencies. However, not all of them take a statistical approach to measure the value of their agency plant. We learned that subjectivity often drives decisions—sometimes with little regard for performance. When performed correctly, studies have found that companies can lower their combined ratio, foster sustainable long-term value and improve resource management. By culling out underperformers, we can focus on the right relationships and improve operating results. Producer segmentation/tiering is reviewed every 18 months for the following year’s implementation. For example, our compensation team will begin its reviews in July 2018 for January 1, 2019 implementation.
Performance-based commissions are another key component to our compensation structure. In 2017, we moved from account-based commissions to product-based commissions. This adjustment allows us to take into account the performance of our various product lines and ultimately lower our commission expense.
The last piece of the puzzle is supplemental compensation. Each year, we review the program results from the prior year, address feedback from the field and make changes as needed. Listening to our producers about what matters to them helps us make adjustments that will keep them motivated—an approach that ultimately pays off for everyone.
If you would like to learn more about our Pay for Performance program, please contact Jennifer Szukics.