Insurance companies manage some of the most complex and varied sales incentive programs. This sector is known for intricate, entrenched sales incentive practices, and diverse sales models.
In fact, when we ask people to provide an example of a sales role with a heavy emphasis on incentive compensation, the first thing they typically say is “insurance agent,” highlighting the industry's reputation for highly variable compensation. Traditionally, insurers adopted a "what can we afford to share" strategy for agent incentives—offering no base salary and fully commissioned programs.
Actuaries seemingly effortlessly created elaborate programs for structuring and delivering incentives, which often included customizing commission rates by product and policy year. It didn’t seem to matter that the resulting programs were communicated through 100-page commission binders.
It is unsurprising that many insurers use this variable, product-driven model to anchor compensation for other sales roles. This approach was the basis for wholesaler compensation plans, although the wholesaler's role significantly differs from an insurance agent. But insurance industry sales extend well beyond familiar roles like agents and wholesalers.
The field becomes complex when considering diverse lines of business, often existing within the same company (such as Individual Insurance, Group Insurance, Individual Retirement, Group Retirement, Property and Casualty, Wealth Management, etc.).
Additionally, there are various distribution models, including Direct to Consumer, Proprietary Agents, Independent Agents, Third-Party Distribution, and Affiliate Marketing. Given this business context, it is not surprising that the typical insurance company sales incentive framework is complicated.
To supplement anecdotal experience, WTW conducted an insurance industry sales compensation survey to understand the current state, providing insight into trends and challenges for improving compensation effectiveness.
01
Simplicity (or more accurately, the lack thereof) is cited as the most frequent challenge for insurance sales compensation, followed by alignment with strategy and roles.
It's not surprising that simplicity is the most common concern, given the tendency to focus on incentive design for each product in isolation from the overall total rewards picture and value proposition. But in some ways, this is a tactical design consideration.
Perhaps greater concern is the fact that 49% cited an insufficient alignment with strategy and roles. This points to a clear opportunity for leaders to more actively guide sales incentive transformation.
02
Almost 39% identified HR governance as a major challenge and opportunity. And upon further examination it appears HR often plays a reactive role at best in sales compensation. In nearly 18% of insurance companies, HR has no formal role in sales compensation.
Most often HR is involved only reactively, handling annual reviews (45%) and reviewing changes made by others (42%) – and, in our experience, often doing this as a technical formality at the last minute with little time to make changes as the plan is about to be communicated.
HR proactively issues sales compensation guidance in less than 24% of insurance organizations.
03
Sales compensation philosophies differ among firms. For example, take market position benchmarking (i.e., where should base salary and total cash be positioned vs peers?).
Around 8% lack a formal benchmarking philosophy for sales roles. In contrast, 27% have specific philosophies for sales versus other roles, and 65% maintain a consistent approach for both sales and non-sales roles. But per Insight #2, without formal HR involvement and guidance, who decides and monitors market positioning?
Beyond highlighting challenges such as simplicity, strategic alignment, and governance, other challenges were also cited, including pay transparency. The opportunity to improve is clear. Addressing these opportunities can boost motivation, align compensation with corporate goals, and enhance clarity.
This gives HR a chance to enhance strategic influence on sales incentives. Moving from reactive to proactive strategies could empower HR to improve compensation practices and organizational success and add value to the commercial organization. How can HR participate in sales compensation?
Rewards: Set up and oversee a governance process; Advise on integrating sales incentives (and sales incentive changes) into the total rewards framework
HR Generalists: Assist in the review/redesign process, especially in companies without dedicated rewards professionals; In companies with rewards professionals, serve as a bridge between the commercial organization and the rest of HR and rewards
Sales Compensation Communications: Aid in the development of content and tools to successfully implement and manage sales incentive plans (e.g., ensure communication consists of more than just an Excel table with numbers); Collaborate with sales to effectively promote new plans, fostering enthusiasm and motivation
Learning and Development: Create manager training programs and materials; Work with internal communications to design an implementation strategy anticipating field learning needs for effective plan use
Plan Participant Research: Monitor the effects of incentive plan changes and sales team reactions and understanding; Develop pre- and post-measurement benchmarks to assess plan impact and offer insights for potential adjustments
Each journey starts with the first step. One way to start the journey is to simply ask: "How effective is the sales compensation program?"
