Paying producers good money to bring in good business has long been the game plan for many successful agencies.

But by taking a more sophisticated approach to structuring compensation programs, insurance agencies and their producers can become more successful, agency consultants say.

Producers should be offered financial incentives to bring in more new business and larger accounts, the consultants say. At the same time, financial rewards for smaller accounts and renewal business should be reduced.

And to ensure that producers are contributing to every part of an agency's book, they should get referral compensation when they pass on leads they do not have the expertise to follow up themselves.

Producers ultimately win richer rewards under these structures and insurance agencies will achieve revenue growth in a soft market by winning new business and larger accounts, these consultants say.

Different business environments need different compensation plans to ensure that agencies remain as profitable as possible, said Timothy J. Cunningham, a principal at Insight Management Group in Chicago.

Currently, if agencies want to grow their business, they need to aggressively seek new accounts, as the commissions on renewal business are falling with premiums in the soft property/casualty insurance market, he said.

But at the same time they should be careful not to lose any of the existing business, Mr. Cunningham said.

Popular compensation structures to encourage new business growth include varying commissions for new and renewal business. Currently, a commission of 40% for new business and 20% for renewal business is a popular structure that agencies use to encourage producers to bring in new business.

But even this structure can be improved, Mr. Cunningham said.

"A new and renewal matrix may obliquely reward growth, but it has very little relevance for retention and profitability," he said.

Agencies should consider offering a higher percentage commission when a producer's entire book moves above a given threshold, Mr. Cunningham said.

Allowing producers a stake in their own book of business after they reach certain targets is another popular compensation-based growth strategy that needs to be revised, said John M. Wepler, vp of merger and acquisition services at Marsh, Berry & Co., an agency consultant in Concord, Ohio.

Agencies often offer producers, for example, 50% interest on their book of business once it reaches a certain size as an enticement to bring in new business, he said.

"The danger with that is that the producers end up doing things only in their own interests rather than in the interests of the agency," Mr. Wepler said. Producers may grow the book to such a size that they spend much of their time servicing their existing customers rather than drumming up new business, he said.

Agencies seeking to avoid this scenario should offer successful producers an ownership stake in the agency, Mr. Wepler said. Then, producers are more likely to be interested in the profitability of the entire agency, delegate servicing tasks to other employees, and seek new business, he said.

Client servicing should not suffer, because a 20% renewal commission will still be enough to ensure that producers will take an interest in overseeing client servicing, Mr. Wepler said. Also, if the agency becomes more profitable as a result of making the best use of its producers, it will be able to afford to take on high-quality account management staff, he said.

Agencies can maintain a good account management staff by introducing a team-based compensation package that rewards a producer and the producer's team for the overall book of business, said Mark S. Lefenfeld, a managing director at Russell Miller Inc. in Austin, Texas.

Members of the team will see that new business attracts a higher commission than renewal business and will more readily help a producer service existing business in the hope that the producer will have more time to win new accounts, he said.

Agencies seeking to increase new business should also structure their compensation plans to encourage producers to concentrate on larger, more profitable accounts, said Carol A. Hammes, president of the Middleton Group in Lisle, Ill., an agency management consultant.

Several of the more profitable agencies now only pay the initial commission for small account business and pay nothing on renewal, she said.

"Obviously, that encourages them to go out and get larger accounts and in the process make more money for the agency," Ms. Hammes said.

Initially, when renewal commissions are cut, there is a "culture shock," but within a year producers see the benefits for themselves, she said.

"They realize that instead of spending their time on something that brings in $200 in commission, they can spend their time working on business that brings in $20,000," Ms. Hammes said.

Small accounts and personal lines business can be referred to other departments within an agency that are geared to handling that type of business, said Mr. Lefenfeld of Russell Miller.

By setting up a referral system with a commission paid to the referring producer, agencies can again structure their compensation package to make themselves more profitable, he said.

"For years and years, people have been talking about the money left on the table by property/casualty people who don't know much about benefits," Mr. Lefenfeld said.

By compensating producers with either a dollar amount or a percentage of the commission for each successful referral, agencies can establish an effective cross-selling system, he said.

Agencies also can encourage their producers to concentrate on larger accounts by annually removing the bottom 10% of accounts from a producer's book each year, said Mr. Wepler of Marsh Berry.

Again, this frees the producer to concentrate on more profitable business.

"It doesn't take them long to realize that if they write one or two accounts at the higher end it will more than replace the commission they lost," he said.

When all the accounts become so large that an agency cannot reasonably take any of them away from a producer, the producer is making enough money to buy stock in the agency, Mr. Wepler said.

"You help them on a career path by making them focus on larger and larger accounts," he said.

Agencies also can encourage business production by giving other incentives to grow the total size of their books, said Ms. Hammes.

For example, once a producer achieves a certain size of book, an agency might give the producer a larger car allowance or an office or a title, she said.

"It's really amazing how the title of vice president can turn someone on, and if it gets producers excited, then it's good for everyone," she said.