The theory of commissions is that it motivates producers to produce more.  This is not necessarily true.  What is true is that if you overpay two things happen:  Your program becomes economically unsustainable and your producer becomes demotivated.  Here is why:

First, It is my absolute belief that preneed selling should never…repeat…never… be a burden on at need operations.   This is one of the primary reasons I advocate the use of insurance funding.  But more on that next week.  The commission pie you receive from your underwriter is finite.  So, you have to practice some stewardship and manage those finite revenues with wisdom.  In my opinion, your commission revenue should be applied first to drive leads and second to pay sales people.  You may be large enough and wise enough to generate excess commission revenue after you pay expenses but most firms simply aren’t large enough for that to be a reality.

Second, if you overpay your counselor they won’t be happy nor will they perform at above average levels.  They will simply produce at the same or, often, lower levels.  It turns out that people have an unconscious income threshold and if you overpay them they will adjust their activity to get back to their comfort zone…go figure.

One thing is for sure, repeatedly changing commission schedules is a recipe for disaster.  So it is critical that you figure out what is fair and works.   Here is a commission schedule that has worked for me.  It is designed to reward performers and fairly pay the average producer.  Here is a PDF of the base schedule.

The Bonus Schedule Makes It Work

The base schedule will produce an average of 4% to 5% commission on face value production.  This is enough to compensate your underperformer to your average producer.  The actual amount will be dependent on the quality of the business they generate.  That is fair, because that is how you get paid.  NOTE:  THIS SCHEDULE ASSUMES YOU ARE PROVIDING BENEFITS, PAYING FICA TAXES AND INCLUDING PAID VACATION.  IF YOU ARE NOT THEN MULTIPLY EACH CELL BY 1.2.

In addition to the base schedule we paid a monthly bonus (the bonus is not subject to chargebacks).  The bonus was calculated based on Gross Face Production but PAID on NET COMMISSIONS AFTER CHARGEBACKS.  This effectively takes into account the quality of the business the counselor is selling.  Older ages get less and younger ages and multipay get more and persistency impacts the overall total.  Here is the simple bonus schedule:

      Production                                       Bonus                                          

  • $0 to $50,000                                                         0%
  • $50,001 to $75,0000                                       20%
  • $75,001 to $100,000                                        35%
  • $100,001 plus                                                       50%

Example:

Gross Face Value Production                               $85,000

Net Commission earned                                            $4,000

Bonus percentage                                                                35%

Bonus                                                                                   $1,400

Total earnings                                                                   $5,400

This plan produced a compensation of about $40,000 for our average performers and substantially more for our top performers.  We had several people producing more than $1,000,000 annually who earned in excess of $100k.  Best of all no one ever complained and we never had to change it AND WE OPERATED PROFITABLY.