The Art of Retaining Employees

It is Friday afternoon and your longtime personal lines manager is nervously standing outside your office. She asks if she can speak with you as she closes the door. Although you’re not quite sure what she is going to say, you’re pretty sure that it won’t be good news. It is worse than bad news: she is leaving to go to a competitor. Your pleas, wage offers and vows to change all fall on deaf ears. This is the third good person you have lost in the last five years. Although it is not a crisis, you have not been able to replace them with equally qualified people. This has created many

obvious and not so obvious problems that ultimately mean more work for you. If this is familiar to you, please read on…

Employee retention is the single most important factor that drives brokerage success. You may be surprised to learn that some business system changes designed to improve profitability will have a direct and positive impact on employee retention. This in turn will increase brokerage productivity and profitability.

In our work as brokerage business analysts, we are often asked to perform due diligence and operational reviews. Part of this review always involves a visit to the brokerage. Before we ask for one piece of financial data, we observe and note how we were greeted, how the counter is serviced and is there a phone-answering system. We also try to observe how engaged employees are with their work.

Next, we have an informal discussion with the managers, asking them about their job and the strengths and challenges of their team. Although unscientific, these observations and discussions give us a good indication of what we will find when we look at the data. In our experience, a brokerage’s bottom is line is affected by its systems and work environment. How does this affect employee retention? Well, good people want to work for good organizations.

DOES MONEY EQUAL HAPPINESS?

When we were designing our 2008 Insurance Brokerage Profitability Study, we wanted to shed some light on the issue of employee retention and profitability. We decided to ask owners, managers and employees some specific questions on wage levels, training and other issues that affect their work environment. We also asked employees specific questions about their work environment, focusing on their brokerage’s customer orientation, office procedures, management style and culture. Our goal was to identify specific issues that have an impact on brokerage profitability and employee retention.

Two hundred and eight brokerages participated in our study; from this group, we received more than 100 completed employee survey questionnaires. Some of the responses were predictable and some surprising. For example, employee turnover and the resultant replacement with less-qualified employees was the single biggest frustration for team members. Respondents also cited heavy workloads and a lack of meaningful training as issues. Only 9% of respondents expressed wage levels as a frustration. On the other hand, more than 50% of employees considered customer interaction as the best part of their job, followed by the social aspect of staff relationships.

Most managers and brokers probably already know what their employees like and don’t like, so the second step in our analysis involved the comparison of the survey results to brokerages of different profitability levels. We grouped our employee sample into two groups: (1) those who work for organizations in which profitability exceeded 20% of sales

[Class A] and (2) those who worked for organizations in which profitability was under 20% [Class B].

We observed that employees who worked at Class A brokerages were 62% less likely to be frustrated by high turnover and the resultant hiring of unqualified employees. Thirty-three per cent of Class B brokerage employees were frustrated by lack of training, whereas only 19.6% of Class A employees were frustrated by this issue. Heavy workload seemed to be an issue with both groups — 21.4% of Class A and 28.2% of Class B respondents reported being frustrated by high workloads.

One very important issue is the level of communication between employees and management. We focused on communication characterized as clarity about office procedures, as well as professional and social attention. Only 8.9% of Class A felt this was a problem, whereas 30.8% of Class B employees considered this to be a major frustration.

Let’s look at two other interesting results. First, 60.7% of Class A brokerage employees reported that they enjoyed dealing with clients while only 48.7% of Class B brokerage employees reported finding client interaction enjoyable. This may be a reflection of the stress faced by Class B employees or it could indicate a lack of appropriate fit for the job. It would be beneficial for both Class A and Class B brokerage management to review employees in a customer service position to ensure the appropriate fit. A re-allocation of duties could increase job satisfaction and in turn increase the profitability of the brokerage.

A second interesting finding is 20.5% of Class B brokerage employees enjoyed the variety in their job, while only 7.1% of

Class A brokerage employees indicated they enjoyed variety in their daily job. Class B employees may enjoy variety but the traits of a profitable brokerage usually involve consistency in daily processes and activities. In our experience, employees that know what is expected of them are more focused and work more efficiently.

We also asked our survey respondents to rate their employers on a scale of 1 to 10 on customer service, management style, service and system. The results between Class A and B brokerages were not significantly different: Class B employees gave their employers an average overall score of 6.63, compared to the Class A employee score of 7.28.Another striking similarity is that the average salary paid in the Class A and Class B brokerages are very similar at $39,000 and $38,400 respectively. We concluded there are no significant differences in wages levels, employees overall view of management or workload.

MONEY ISN’T EVERYTHING

The previously mentioned salaries do not include commission producers’ salaries. We found there has been a trend away from commissioned producers. Also, if non-commissioned producers are given adequate training, sales support, marketing materials and are paid adequately, on average they tend to handle more premium volume and have less turnover than the 100% commissioned producers.

Now let’s compare employee turnover and the financial success of the two groups. In our study, employee turnover in Class B brokerages is almost twice as high as in Class A brokerages. More importantly, Class A brokerages earn average profits of 30.3% on sales compared to an average profit of 11.4% for the Class B brokerage.

The real difference is that Class A brokerages provide a consistent work environment with training and good communication. This is turn reduces turnover, making the entire organization more effective and profitable. The good news is that these changes can be made within the particular context or environment in which your brokerage is working. A publicly- traded company with 500 offices will undoubtedly have to employ different techniques than a locally-owned, single-branch brokerage.

In the end, work environment is what drives employee turnover and ultimately profits.

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Top 3 Frustrations: % of respondents

High employee turnover -30%

Heavy workload -24%

Lack of meaningful training -18%

Top 3 Positives: % of respondents

Dealing with the customers -56%

Working with their colleagues -32%

Variety of work -13%

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Employees who worked at [more profitable] brokerages were 62% less likely to be frustrated by high turnover and the resultant hiring of unqualified employees.

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60.7% of [more profitable] brokerage employees reported they enjoyed dealing with clients, while only 48.7% of [less profitable] brokerage employees reported finding client interaction enjoyable.