In the last two years, Progressive has been faced with competition for high achieving sales representatives from a firm called CMI, in Solon, OH. CMI is an insurance brokerage that uses similar techniques to Progressive in that it provides customers with insurance rate quotes on three company’s insurance. The reason for the competition stems from the incentive program offered by CMI. The sales representative from CMI are paid an incentive for every sale, which leads to much greater opportunity for financial reward for representatives who have strong sales skills and interests. As you will see, a noteworthy portion of the DSR turnover in Mentor is due to DSR’s leaving for CMI.
As you can see, the turnover for DSR’s is higher than the average for all Progressive employees.
Turnover
►21.9% DSR turnover (Mentor DSR Only)
Associate Population 125 (approximate)
►14.3% Total turnover for all of Progressive
Associate Population 20,000 (approximate)
Reasons for Mentor DSR Turnover in 2003 (42 total terminations) – See attached Pareto Analysis
ADD PARETO DETAIL HERE!!!!
Given recent changes in the incentive compensation structure (described below), there may be an increase in turnover of DSR’s who were receiving more regular incentive payments in the past.
Costs for a person leaving DSR position within first 6 months is $30,000 based on calculations which human resources has determined. Factors tied to this cost are:
- Payroll/ Employee benefit costs
- Training costs (Outside trainers, Progressive trainers, materials)
- Fees for licensing in each state
Direct Sales Representatives performance is measured in a number of ways. Incentives are based on number of policies sold. In addition, DSR productivity is measured by the amount of time the employee is logged into the phone system as available. Direct sales management is responsible for monitoring performance and communicating concerns to the DSR’s
Organization Where the Problem is Occurring
Progressive has Direct Sales positions in a number of locations throughout the country. For the purpose of this paper, the Mentor, OH location is the focus.
See Organizational Chart attached
- Human Resources
- Direct Sales Management
- Training
The relationships between these departments is as follows:
Human resources advertises, sources, and screens candidates for the DSR positions. Then these candidates are hired based on a mutual decision between HR and DSR management. The Training department is involved after the hiring of new DSR’s and is then responsible for preparing the new employees for licensing exam and the job functions. DSR management is involved sporadically in the employees training, but become more directly involved once the new DSR is sent to the floor as a trained DSR. This paper will address all of these areas and relationships, as well as discussing the a potential change to the incentive structure
Functions Performed by the Interacting Departments
See “Is” Map attached
Human Resources – The HR department coordinates the flow of applicants, screening, administration of the Progressive Simulation, interviewing, and is heavily involved in who is selected for the DSR position. Based on this, they are very influential in setting the expectations for new employees during the hiring process.
DSR Hiring Process
- Review Applications
- Determine Interview Questions
- Explanation of job requirements
-
Administer Simulations
- Handle all applicant correspondence
- Offer positions
- Handle all new hire paperwork
- Determine compensation and incentive structures
- Handle terminations and discipline
Training – There are two training functions involved in the initial new hire training for Direct Sales. Progressive contracts with an outside training organization (Honduras College) to conduct the licensing training for all new representatives. This training happens in the first two weeks after hire, after which the new hire completes the Ohio P&C licensing exam. After completion of this exam, Progressive trainers take over and cover the processes and procedures for the DSR position. During the second phase of training, each DSR is completing training for state licensing exams in a self study/ online format. This training includes training on systems, processes, documentation, and basic sales skills.
DSR Training Process
- Orientation
- Licensing training
- Sales training
- Discussion of sales quota
- Administer training exams
- Mentoring Program
Direct Sales Management – Management within the Direct Sales department is responsible for daily monitoring of the DSR’s quality and quantity of work. Management is also involved in the initial interviewing and hiring process. Managers are responsible for determining which states, and how many licenses each DSR will have. The licenses, which a DSR holds will determine the type (location) and number of calls that DSR can take. The current incentive structure is based on a point system. Policy sales for each state are worth different point, and the overall incentive plans are based on a point accumulation every eight weeks*.
- Determine staffing needs (based on call volume)
- Interviewing new hire candidates
- Monitor DSR call availability
- Determine licensing for each DSR’s
- Set and monitor process & procedures
- Monitor and enforce quotas
- Communicate incentives
- Document and coach performance
* Note on Incentive structure – In Direct Sales, a small portion of the compensation is based on policy sales performance if the individual. In 2004 this incentive was changed in a way that makes it more challenging for many DSR’s to achieve any regular incentive payments. Previously, DSR’s received an incentive payment bi-weekly based on sales for the previous period. The new incentive structure uses a point system that has less frequent payouts, and only rewards the top 20% of DSR performers. This new system is likely to cause employee dissatisfaction for many existing DSR’s who were used to more regular incentive payments.
Underlying Causes of the Problem and the Consequences for
Each Department and the Organization as a Whole
See Fish-Bone Diagram attached
1) VARIATIONS IN BUSINESS VOLUME WITH EACH LICENSE
- Some states are more difficult to get licensed in.
- Direct Sales Reps are licensed in states where business volume is low (they get less sales than reps licensed in high volume states).
- UNEQUAL NUMBER OF LICENSES PER EMPLOYEE
- Direct Sales Reps with more licenses can do more business
- EMPLOYEES ARE UNABLE TO DETERMINE SALES NECESSARY FOR TOP 20%
- Reduces motivation in some reps.
- Decreases productivity in Sales Reps who thrive to be on top (DSR’s do not know where they stand in comparison to other team members)
- TIME TRACKING IS TOO STRICT
- Increases fatigue
- Decreases job satisfaction, which lowers productivity
- TRAINING DOES NOT ADDRESS THE IMPORTANCE OF QUOTAS
- BONUS PLAN BASED ON SALES POINTS, NOT ACTUAL SALES
- Dsr’s can lead the team in sales, but have low sales points (only points are considered in the compensation plan)
- CHANGES TO THE INCENTIVE COMPENSATION PLAN DO NOT REWARD DSR’S AS WELL FOR GOOD SALES PERFORMANCE
- Decreases motivation in reps who know they will not be in the top 20%
- SCREENING DOES NOT ADEQUATELY DETERMINE SALES INTERESTS AND ABILITIES IN APPLICANTS
- Increases training time and costs
- Decreases productivity (remaining reps. must pick up slack).
Recommendations
See “Should” Map attached
Our recommendations as highlighted on the attached “Should” map are as follows:
Human Resources – We are recommending changes in the hiring process and incentive compensation structure.
DSR Hiring Process
- Focus screening efforts on candidates with previous sales experience
- Administer a sales skill assessment. This type of assessment is designed to gauge the applicant’s personality traits and skills/ motivations, which ties to their likelihood for success in a sales job. This will be administered in addition to the Progressive Simulation. (See attachments)
- Use screening and interviewing questions which determine a candidate’s comfort in a sales environment. Ask for examples of previous sales situations and whether candidate’s compensation has ever been tied to sales performance.
- Candidates who are not recommended based on the new sales skills assessment should be considered for other customer service positions within Progressive if they meet all other qualifications.
Incentive Compensation
- We are recommending a change to the incentive compensation that would revert to a plan similar to the previously existing plan in Direct Sales. DSR’s used to be paid an incentive bi-weekly based on sales results. The current incentive only rewards the top 20% of DSR performers, every eight weeks based on a sales point system which is very confusing. One concern is that DSR’s can’t even measure their performance throughout the eight-week time period, not to mention the difficulty in understanding the plan itself. Under the previous system a DSR could view their sales to plan or goal at any time.
Training – The training will remain the same for all licensing related functions, as this is required in the State of Ohio, and all subsequent states that a DSR might become licensed. We are recommending that the training contain a greater focus on sales skills, not only to improve these capabilities in new DSR’s, but to reinforce the importance of sales performance for the position. During training, we feel that a greater emphasis on communicating and preparing new hires for the sales quotas is necessary.
DSR Training Process Improvements
- Trainers involved in sharing position requirements to candidates who are being interviewed
- Orientation to focus on sales quotas
- Sales training strengthened to increase sales skills of new DSR’s
Direct Sales Management – We are recommending improvements in management’s involvement in the initial interviewing and hiring process. Generally speaking, more communication surrounding the sales quotas and incentive plan is necessary to ensure DSR success. A review should be undertaken two to four weeks after the training is completed and the employee has had the opportunity to experience the company. The assignment of state licenses ties directly to the volume of potential sales a DSR might make. In the current system, the licenses are not equally issued, and certain DSR’s have a greater chance to make incentives. This is particularly true given the weighting of the point system that is used for the current incentive structure. Certain states are allotted greater point for a policy sale. This method of work distribution and incentive payment to DSR’s may lead to greater turnover.
- Train managers on better interviewing skills to assess a candidate’s fit for a sales environment.
- Communicate the quotas in the interviewing process
- Ensure that the DSR who new hire candidates shadow have the appropriate sales skills
- Monitor and enforce quotas and communicate new incentive plan
- Assign DSR’s state licenses more evenly
- More regular status reports on sales performance
After implementing the recommendations highlighted in this paper we would expect a decrease in turnover from 42 terminations within the first six months to 35 terminations within the first six months.
Turnover Costs
► $1,260,000 total costs for 42 terminations
► $1,050,000 total costs for 35 terminations
$210,000 Turnover cost savings
This is a conservative estimate for improvement. Turnover is often tied to morale and we have not addressed any improvements directly related to building or improving employee morale in this paper. If Direct Sales management made a concerted effort to foster better communication, teamwork and a sense of belonging among the DSR’s in their teams, morale would be bound to improve.
Summary
In a service business like auto insurance staff turnover costs can be very significant. In Direct Sales, the costs tied up in hiring, training, and general administration related to new DSR’s (particularly in the first six months) is enormous. It is our belief that the practices that are used by Progressive Insurance could be improved to reduce the overall costs of turnover. Many of these improvements will make hiring more challenging, as the screening process has been intensified. Additional costs will be encountered to implement assessments for sales skills. Prices can be as high as $250 per applicant for assessments purchased from a third party testing designer. During training, there will need to be new attention given to the quotas and sales competency development. This may extend the training by one day, which also would have an associated cost. Lastly, greater management involvement and communication is also important to ensuring that DSR’s know what is expected of them, and to strengthen the sales culture in the Direct Sales department. There may not be an assignable cost for this initiative, however, managers do have a great deal on their plates, and this may be the greatest challenge. Our expectations for improvement and cost savings were modest, and do not take added cost into account, however, given the $30,000 lost for each new hire who terminates, it is clear that there is cost savings which can be realized through a reduction in turnover.