Downward Pressure on Compensation Continues..

We hope all is well in these challenging financial times.

Due to the large volume of calls being received from hiring authorities inquiring about the status of the employment market, pricing activity, M&A flow, compensation movement, and candidate supply/demand, I decided to make my bullet point response available equally to all clients. Hopefully, you will find these useful:

1. Employee Benefits vs. P&C: there has been a very significant shift from hiring on the P&C side to the Employee Benefit side. Our practice has gone from a 70/30 split (P&C/EB) to 80/20 (EB/P&C) during just the past six months with an almost frantic demand for hunter-type producers on the EB side of the house.

2. Pricing: Based on what we are hearing, the downward pricing spiral for P&C appears to be flattening out, but no real signs of a hard market yet although most expect this to develop by year-end. If your top line revenues on the P&C side are not down by more than 30% year over year, you’re doing better than most, while EB seems to be holding its own.

3. M&A activity: There is, in fact, a significant amount of M&A activity occurring in the small to midsize agency sector right now. This includes everything from large books of business being purchased outright to agencies combining to achieve scale and efficiency. We are currently involved in 4x as many transactions since third quarter 2008 compared with the same prior year period. Of course, our role is more of matchmaking and not on the deal structuring side. If you have a specific M&A profile you are searching for between the Philly and North Carolina area, just let us know as we are coming across these on a more regular basis now.

4. Compensation Movement: We are also seeing compensation levels returning to pre-2008 levels for account managers and support staff whereas compensation packages for A+ producers are continuing to rise. Year over year, base salaries being offered for commercial account managers on both the EB and P&C side are down an average of 7.4% which is unprecedented.

5. Candidate Supply/Demand: Recently, I have seen some of the best senior commercial and employee benefit account managers/executives to surface in the past five years. Recent downsizing and organizational restructurings mostly account for this sudden breakthrough. And producers with books of business continue to be in high demand.

Hang in there!
We look forward to your continued business and valuable feedback.

New Compensation Models Emerging....

During the past week, I came across an interesting compensation plan for a producer that I had never come across before. Usually, it is the standard two year non-recoverable draw or declining base salary model, but this one specifically addresses the producer who brings significant BORs to his new employer.

Here's how it works: Let's say the producer has a demonstrated compensation history of say $150,000. He departs his existing firm (Firm A) after two years and begins to roll over previous clients from the firm he worked for previous to Firm A. Call this Firm B. Since his two year non-compete from Firm B is just now expiring after two years, new producer calls on his previous customers from Firm B and learns that he can roll over a significant portion of this business. Hence, his new firm (Firm C) hires him on the basis that he can bring over a significant portion of these Firm B BORs. As such, to mitigate the risk of a high starting base salary, Firm C offers new producer a very low base ($70,000), but promises new producer 100% commissions (dollar for dollar) for any BORs delivered; to be immediately paid upon BOR presentation. At a negotiated compensation level (say $150k) the standard compensation plan takes over.

This is a win-win for both parties as the employer is not on the hook for a large monthly committment from Day One and, if the producer delivers, he/she can quickly get to their previous level of compensation without having to painstakingly build their book of business all over again.

Feel free to give me a call on this compensation plan or any others as firms are getting very creative given the current economic climate.

2008 Salary Survey is now available

Back by popular demand, our 2008 Salary Survey has just been completed and will be sent out to our valued clients and candidates during early January 2009. Just shoot me a quick email at rhoughton@mrfairfax.com and I will be happy to send you the complete analysis. Some high points:

1. Demand for Employee Benefits Producers significantly increased during the second half of 2008;
2. Demand for P&C Producers came to a screeching halt during this period;
3. Clients are looking for producers who can bring a book of business and/or an existing revenue stream AND are willing to pay for this;
4. The demand for CSRs is now almost non-existent compared to just one year ago;
5. The demand for top notch producers in the WDC, VA, MD regions is very strong and will continue to be for 2009;
6. P&C revenues (books of business) are down almost 33% compared to one year ago - very soft market

More on the employment situation later...