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producer compensation system

The Right Producer Compensation System

What is the right producer compensation system? if you’re an organization asking this question, then you’re not alone. Over the years, thousands of insurance agencies have inquired about the best system for compensating producers. The world and technology have changed over the years but one thing remains the same—there is still no universal formula for compensating producers. So, how do agencies compensate producers?

They compensate producers using one of the four methods, which include straight salary, straight commission, draw against commission, and salary plus commission. The lack of a standard blueprint puts the entire responsibility of developing an ideal compensation plan on the management. Ideally, the compensation should be affordable for the company yet effective enough to attract and retain good producers. Additionally, the plan should equally suit novices and veterans, albeit at different pay levels.

Which is the Best System for Compensating Producers

Which of the four methods/systems mentioned above is best for compensating producers? This is a tricky question to answer so we will provide you with information on each and leave the decision to you. In a straight salary system, the producers know up front what will be paid to them. Usually adjusted annually, the paid amount is based on the previous year’s production and expected revenues for the next twelve months. The biggest problem with this system is that it measures compensation-to-production just once a year.

In a straight commission system, the organization pays commission on only the sales that are made. For all policy sales, commission percentages are known up front to producers in the system. The problem with this producer compensation system is that it does not offer any basic/fixed salary, which can be a major stumbling block in recruiting competent producers.

In a draw against commission system, producers take home a fixed monthly check and can earn an unlimited amount from commissions. In this system, the monthly check given to producers is not a salary rather it is a draw—a repayable advance against future commission earnings. On a periodic basis, usually annually, the actual commissions earned by the producer are compared against the paid draw amounts. If commissions exceed the draw, then the company has to pay the difference to the producer. However, if the draw exceeds the commissions, then roles are reversed, and the producer has to pay the difference to the company.

In a salary plus commission system, the producer receives a fixed monthly salary and can earn additional income based on production. Unlike the draw against commission system, the salary plus commission system allows the producer to keep the monthly salary regardless of how he fared during the year. While this system ensures that producers stay happy and motivated, it often causes the company to run unprofitably.

As seen above, each producer compensation system has its pros and cons. CallidusCloud offers a solution that allows you to merge the pros of each system and develop compensation plans that equally benefit producers and your company.

Learn How Telstra Is Designing Sales Compensation Plans To Incent The World

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Incentive Compensation Management: Build v.s Buy:

  • Consider the changing revenue recognition requirements.
  • Evaluate the efficacy of your current compensation plan.
  • Review the efficiency of your sales operations team.
  • Determine the available internal resources to support your system.

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