For the Manager- Producer compensation: Time for something new?

Why pay producers 35 percent on new business rather than the 30 percent an agency might pay for renewals? Or why pay 40 percent for new and 25 percent for renewals? These types of commission splits are within the industry standard, but is this the best system for paying producers? Do these compensation rates motivate producers to perform at their peaks?

Traditionally, paying more for new business will incite producers to grow their books. Financially, though, the extra amount is insignificant in the broad scope of compensation if retention is average. For example, consider the fairly common scenario of a producer with a $350,000 commission book, 0 percent growth, and 90 percent retention. This leaves 10 percent of the book, or $35,000, as new annually (not net new, just new, and it is important for agencies to measure and manage both metrics). If the producer is paid 35 percent new and 25 percent renewal, he or she earns an extra $3,500 annually ($35,000 times the percentage difference between new and renewall, or times 10 percent) for new sales. Even if the split was 45 percent new and 30 percent renewal, the extra money for new business is only $5,250 ($35,000 times 15 percent) annually.