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Key Performance Indicators

Compensation based on results, not efforts

Am I overpaying the wrong people and underpaying the right people?”

This question should keep every agency owner awake at night.

Most agency owners accept the idea that compensation is a necessary expense. They also choose to pay employees based on their efforts rather than their results. This compensation strategy is broken.

Compensation is not an expense; it’s an investment.So, what’s the most effective way to tie compensation directly to profitability in your agency?

Let’s say we’re at an archery range and I offer you $500 to hit the bull’s-eye. You aim and fire but miss. Frustrated, you want to quit. The cause of your frustration is not a lack of dedication or ability. The problem is you didn’t have a target to hit.

Key Performance Indicators (KPIs) provide staff with clear targets they need and deserve.

KPIs are business drivers that objectively measure and guide how your agency does business in order to increase revenue and profitability. KPIs engage staff to work together to deliver actionable and profitable behaviors for everyone’s mutual best interest.

KPIs exist to change behavior, not to challenge staff to hit stretch goals. They are successful when set high enough to accomplish agency goals and low enough to be achievable.

Imagine driving to work and reaching for your phone in the passenger seat. Suddenly, the car magically veers to the right. Why? Actions always follow focus.

John is an agency owner in Chicago. After 25 years, John gave his staff target KPIs, including asking customers for a testimonial. The last time a customer offered a testimonial was 1991. Within six weeks of implementing KPIs, his agency received six fantastic customer testimonials. When asked, “What happened?” his employees replied, “It was our KPI.” They didn’t even realize their behavior had changed.

KPIs and The Equity Theory

One of the most common forms of agency stress is employees feeling they put more into the job than a coworker, yet the coworker receives the same compensation or more. In the 1960s, behavioral psychologist J. Stacy Adams introduced what he called “The Equity Theory.”

Stacy proposed that employees seek to maintain a balance, or equity, between the inputs they bring to a job and the outcomes they receive from it against the perceived inputs and outcomes of others. People generally don’t object to someone making more money so long as the perceived rewards (output) equal their amount of work (input).

When staff is assigned KPIs, a communal environment is created in which everyone shares responsibility for making the agency the best it can be. Even though KPIs may differ between job responsibilities, everyone feels a sense of equity because each person is required to achieve their KPIs (input) to receive all the performance income (output).

How KPIs Change Behavior

KPIs change behavior by sparking activity in the brain that releases a highly addictive neurotransmitter – dopamine. Dopamine compels us to achieve incremental goals and makes us feel good when we check things off our to-do list or achieve a KPI. Every achievement releases more dopamine. The effects of dopamine are so powerful and predictable that even the anticipation of achieving a task lights up the brain with accomplishment and satisfaction.

KPIs also change behavior by placing achievement in a social context. Recently, an energetic young door-to-door salesman knocked on my door. He said, “Several folks on your street—Ann, Bob, Joe and Mary—chose our pest control service. Would you like to join your neighbors to take advantage of our special pricing because we’re already in your neighborhood?”

This sales approach is based on people’s intrinsic desire to fit in and belong within a social group. Creating a sense of belonging releases another powerful chemical in the brain oxytocin. Oxytocin is a hormone that creates empathy understanding, generosity, happiness, and trust.

The group was my neighbors. The agency’s social group is your staff. Staff is engaged to achieve KPIs when they see others in the agency achieving their goals, especially when the achievers are recognized by management.

KPI Best Practices

People are more willing to trust and cooperate with management when they feel what is being asked of them is based on more than the owner’s whim. Adopting tested and proven best practices increases the chances staff will be open to KPIs and achieve their KPI goals.

The following best practices are proven to reduce stress by creating targets and boundaries for your staff. The result? Your agency will experience planned, strategic growth and enhanced customer satisfaction by establishing a consistent way of doing business.

Best Practices for effective KPIs includes:

Limit the number of KPIs to seven tracked by staff, and no more than an additional two KPIs tracked by management.

Lead directly or indirectly to agency growth and profitability.

Reflect your agency’s vision, mission and core values.

Facilitate how your agency does business.

Are objective and measurable.

Are achievable.

Are calculated based on objective business metrics.

8.   

Mean the same thing to all people in all situations.

Example of KPIs

Agency growth relies on every employee’s top performance. KPIs for non-revenue-generating staff are even more important because their performance is often overlooked due to a lack of tracking tools to determine the profitability of their roles.

The following KPIs are some of the 90+ proven KPIs that Catalyst, my insurance software company, has developed for our talent management system, Symphony.

 

         Account Development

o   Schedule/complete account reviews

o   Customer testimonials

o   Claim follow-up

o   Send “Thank you” cards

o   Cancellation callback

o   Write new umbrella policies

o   Policies or premium with preferred carrier

         Accounting

o   Balance general ledger

o   Monthly financial report to agency owner

o   Manage accounts receivable

         Administration

o   Completing staff audits

o   Lead staff meetings

o   Document IT department

o   Create policy/procedures manual

o   Referrals to other departments

         Sales Process

o   Cold calls

o   New premium

o   Number of prospects/customers talked with

o   Average policies per new account

o   Average accounts with multiple policies

o   Completed quotes

o   Total new accounts

         Social Media

o   Facebook posts

o   Write/publish blogs

o   New LinkedIn connections

         Staff Development

o   Personal growth and development

o   Get license

o   Get designation

o   Peer evaluation

o   Community involvement

 

Maximum Point Values to KPIs

The most effective way to maximize KPIs by assigning the maximum points for each assigned KPI and goal. Staff’s responsibility is to score 95 to 100 in each quarter of their compensation plan. By using a maximum point value, 100 points is the maximum score for each quarter.

When an individual achieves 100 percent of their KPI goal, they receive 100 percent of their maximum points for that KPI. If they receive 90 percent of their goal, they receive 90 percent of their maximum points.

When staff exceeds their KPI goal, they still receive 100 percent of their maximum points because each KPI stands on its own as part of the overall compensation plan. However, achieving the goal early in the compensation plan means their goal is zero and they receive their maximum points for the remainder of the compensation plan.

The following is an example of a compensation plan beginning January 1, 2017 and ending December 31, 2017, with KPIs for Personal Lines CSR. Note that KPIs include personal development, measures for the sales process, following agency procedures and writing new business.

KPI

Goal

Maximum Points

Completed Quotes

260

15

Compliance Audit

100%

10

Customer Testimonials

52

10

New Premium

$312,000

20

Personal Growth and Development

24

10

Referral to Commercial Lines

52

10

Scheduling Account Reviews

156

15

Updating Contact Information

780

10

TOTAL  

100

Relating KPIs to Compensation

To relate KPIs to compensation, assign low score and high score ranges that determines how much income an employee receives from their performance income. Let’s say an individual has $1,000 available in performance income. The chart below explains how much performance income is received based on achieving their KPI goals.

Low Score

High Score

Percentage of Performance Income

Performance of Income Received

80

84

25%

$250

85

89

50%

$500

90

94

75%

$750

95

100

100%

$1,000

Key Performance Indicators are an invaluable form of business intelligence. KPIs require time, energy, effort and commitment. They stimulate consistency, engagement, growth and a consistent way of doing business.

Questions staff may ask about KPIs:

Why don’t I get extra credit if I exceed my KPI goal?

Staff does not receive extra credit for exceeding a goal because KPIs are not part of a bonus plan. KPIs create a compensation plan based on everyone’s personal responsibility to do their job.

Most agencies have tried bonus plans, and most are frustrated at their lack of use and effectiveness. As a bonus opportunity, staff is given permission to do the extra work and get the money, or not do the work and not get the money.

Most staff lack a sense that the bonus money is real, so they have not lost anything if they don’t get it. For a compensation plan, you create a “pain of loss” when they don’t receive something that is theirs. People will do whatever is necessary not to lose something that belongs to them.

If I don’t get all my money in one quarter, can I make it up next quarter?

Staff should be able to make up money they did not earn one quarter by raising the goal for the next quarter and rolling over the performance income they lost, providing the quarters are in the same compensation plan period.

For example, if the plan is for January 1, 2017, to December 31, 2017, then goals not achieved in the first quarter could be made up in the second quarter.

What if I hit my goal early in the year?

If staff hit their goal early in the year, their goal for each remaining quarter should be zero. They receive their maximum points regardless of what they may achieve in each quarter after their total goal is met.

4.Is my goal reduced if I am out on vacation?

KPI goals are for an entire year, so goals are not reduced during quarters where staff may be on vacation.

At Catalyst, we discovered that KPIs are the single most effective way to engage, develop, encourage and motivate staff to change behaviors. When staff understands what is expected of them and they have the emotional and financial benefit for change, most welcome the change. The ones who don’t are probably on the wrong bus.


 

Catalyst is a software company providing technology, training and resources to the insurance industry/strong>

3301 Bucknel  Rowlett, TX     972-961-4798     tbaker@catalystinsurancesystems.com