The shift in how brokers are paid

COVID-19 has wreaked havoc on the Canadian economy in general, but it doesn’t seem to have made a serious dent in brokers’ compensation.

Brokers report that, overall, their performance-based compensation models have worked and adapted well to the ongoing pandemic. According to Canadian Underwriter’s 2020 National Broker Survey, principals have increasingly turned to performance-based compensation to improve brokers’ performance over the past couple years — up 20% from 2018 to 2020.

Of the more than 80 brokerage principals surveyed this past summer, when the pandemic was still in its early stages, 71% reported performance-based compensation had been either “beneficial” or “highly beneficial” over the past two years in improving the performance of their brokers.

This is the third straight year that interest in performance-based compensation has increased. In the 2018 National Broker Survey, only half (51%) of broker principals ranked performance-based compensation as a best practice, rating it between eight and 10 out of 10. Last year, the number rose to 63%.

Canadian Underwriter’s national broker surveys don’t define performance-based compensation. On one end of the spectrum, a 100% commission-based model means that a broker’s income is directly reflective of his or her sales output; on the other end is a fully-salaried model, where a producer is paid an annual salary with no commission. In between are hybrid compensation models, which include a base salary and commissions.

Alberta-based brokerage Surex operates on a 100% commission structure for its team. Ryan Kirk, Surex’s vice president of distribution for eastern Canada, said that the COVID-19 pandemic hasn’t “really had a significant effect in a negative way” on the brokerage’s compensation structure.

Part of the brokers’ commissions at Surex are based on renewals, so there have been cancellations due to many clients not being able to make payments due to a job loss or reduced hours, for example. However, because Surex is a digital brokerage, “we’ve actually seen an increase in the amount of new business that we have received over the past eight months,” Kirk reported, as standard bricks-and-mortar brokerages are not operating as normal.

“Though our brokers may have seen a bit of an effect [with] the cancellation of clients, we’ve actually seen a wave of increase in new client business as well,” Kirk said. “It’s kind of evened itself out.

“It goes two ways. We always want to make sure we do what we can for our brokers — and again, they’ve not taken a hit — but we do sympathize with our clients quite a lot based on a lot of the calls we’ve had to take during the last eight months.”

In line with the findings in the 2020 National Broker Survey, Kirk said Surex has found that when interviewing candidates for broker jobs, “you are hearing more about people coming from brokerages where…more performance-based compensation is being offered than it has in the past.”

For Adam Mitchell, president of Whitby, Ont.-based Mitchell & Whale Insurance Brokers Ltd., he hasn’t had to change or modify commission rates because of the pandemic.

“Our model worked well and adapted well [to the COVID-19 situation]; I would say our changes are more because we are growing and maturing as a company,” Mitchell said.

Mitchell was asked how the pandemic has changed brokers’ compensation packages, if at all. “This has pushed us to be more transparent and advance a report card for most every position in the company,” he responded. “It was important to me, during COVID more than ever, that everyone know how they are doing and [have] a path towards making more via raise, bonus, commission or other [compensation method].”

Mitchell said the brokerage is on a path, a “multi-year journey,” to create the best place to work in the industry. “Compensation is a huge part of this,” he said. “If people can join a growing company, a winning team, have a good time and make more, why not?”