To develop a successful compensation plan, a simple cash flow model or profit center needs to be established. This can be done by taking the agency revenues and subtracting expenses related to the book of business. The expenses include staff compensation, sales and overhead expenses and the profit to be paid to the owner. The producers pay for their own expenses, such as payroll taxes, health insurance and travel and entertainment. This way some of the expenses normally borne by the agency are now included in the producer compensation.
Some producers demand ownership as a form of commitment from the owners.
Minority ownership can cause problems in the future such as if the majority owners decided to sell and the minority owners hold out. A new owner however, with the right talent can energize the agency and step it up to the next level. Ownership should be considered only if it is in the agency's best interest and the producer has earned it. The producer should add some unique talent or leadership that will augment the management of the firm, not just production. Pure producers should be considered for ownership only when they are of strategic value to the firm and have met some preset performance standards.