October 18, 2021

Pay Compression Creates Challenges for Agencies Hiring Client Service Talent

by Mary Newgard

Dear Mary: Our agency is a regional, independent, privately-held broker in the Midwest that has been in business for decades. Every year we hire young, inexperienced people to come into the business as assistants and CSRs. We also have plenty of hiring needs for seasoned account managers. 2021 has been a challenge. Not only have we struggled to recruit experienced service candidates, but the young people we’ve interviewed want a ton of money with no insurance skills whatsoever. What are agencies like ours doing to offer competitive compensation while also taking into consideration internal equity?

When I interviewed client service directors for my June 2019 article, A Clear Path For Agencies Hiring Young Account Managers, I remember one conversation stood out. The executive said college graduates in the Southeast, especially those coming from Risk Management & Insurance programs, wanted, on average, $55,000 as the starting salary. I was floored thinking how many agency CSRs and account managers with two to three years of experience don’t earn that. It was my first introduction to pay compression. The issue goes much farther back than 2019, but it’s been exacerbated by 2021’s talent shortage.

What Is Pay Compression?

If Pay Compression wasn’t a term on your radar screen before 2021, I am guessing it will be now or in the near future as you encounter the same problems the aforementioned HR Director has faced.

  • Pre-2021 most insurance agencies used the term “internal equity” to describe their hiring challenges with compensation. Basically, a new employee wants the same money as a tenured staff member. These two people have the same amount of career experience, but tenure doesn’t automatically garner a higher salary.
  • Pay Compression is different. In 2021, new hires with significantly less career experience want as much money as experienced employees.

When Is Pay Compression Problematic in the Hiring Process?

Here are some of the most common situations where I’ve seen agencies run into issues with pay compression.

  1. You make an offer based on current internal equity and realize that’s far below the candidate’s current or expected compensation.
  2. Your offer is usually 5% to10% higher than the person’s current compensation. This is better than your typical merit increase for current employees. I haven’t seen an account manager make a job change in 2021 for any less than a 15% to 25% raise and they’ve had three to four comparable offers on the table when they’ve made their choice.
  3. Some states require salary info to be included in job advertisements. You’re uncomfortable doing that because current employees are paid less than what you’re willing to offer a new person for the same role. Knowing this, do you create the job ad and hope employees don’t see it or start raising salaries to protect retention?

What Strategies Combat Rising Salary Expectations?

Eighty percent of an insurance agency’s hiring needs are non-sales positions. A huge percentage of that group are client service positions, so the way to combat Pay Compression is to offer alternative forms of compensation that CSRs, account managers, and account executives value.

  1. Sign-On Bonuses. Start offering signing bonuses to new hires. It’s still a fairly new concept, so you’ll stand out from the competition. Most account manager sign-ons are $3,000 to $5,000.
  2. Quarterly or Semi-Annual Bonuses. “Now” money incentivizes service employees, so getting performances bonuses in their hands more regularly than every 12 months tempers the urge to start a job search to achieve short-term financial gains. It is a great retention strategy.
  3. Promotions. Millennials and Gen Z employees like career progression and respond well to levels. Large brokers have had CSR I, CSR II, and CSR III layers in place for years. The idea of advancement, with small compensation increases every one-to-two years is much easier to absorb than the huge pay jump a prospective or current employee expects after waiting three to five years for the promotion from CSR to account manager. That’s what will cost you the big bucks and create problems with internal equity, employee retention, and new hire pay compression.

“Ask the Insurance Recruiter” is a monthly column written by Mary Newgard, Partner and published in partnership with Insurance Journal Magazine. Visit Insurance Journal Magazine’s website for a complete list of previous articles. For questions and comments, email Mary at mnewgard@csgrecruiting.com


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