When Technology Changes the Job, Compensation Has to Catch Up
Everyone is talking about AI, and some of the things it can do are truly amazing. There is no doubt that we are at the start of a brave new world in how technology supports business endeavors. But how will this affect workers who have traditionally been compensated through heavy use of performance-based incentives?
There are only three potential outcomes for compensation:
-Don’t change it
-Increase it
-Decrease it
In aggregate, as technology comes to the forefront in a broker business model, compensation spend will have to decrease. The benchmark of $1m in revenue per head that held for the last two decades has already started rising rapidly—first as a result of lower-cost offshore resources and now because of AI. I regularly see clients with more than $2m in revenue per head, and that number is only going to go up. This means either fewer people doing the same amount of work or the same number of people doing more work. There isn’t a third option.
At the individual level, under either option, the amount one person produces is going up, creating a conundrum for traditional straight-commission incentive plans. Using simple numbers, if you pay a 10% commission and a person produces $1m in GP$ in a year, you will pay them $100,000. If they produce $2m, you will pay them $200,000. But if the $2m did not require any additional effort and, in fact, cost the business more because of higher technology fees, then paying twice the commission doesn’t make sense economically or as a reward for extra effort, because there wasn’t any. The proper adjustment would be to cut the commission rate to 5% because now the same reward is paid for the same effort, and the company retains the balance to cover the additional tech costs.
However, I suspect many of you feel this isn’t fair either and would start working to figure out exactly where the line should be drawn (7.5%, anyone?). But this is not going to be a set-it-and-forget-it decision, because productivity is going to double again—next year or the year after. Keep in mind: the market value of a job does not double just because production did. Carrier sales reps aren’t suddenly going to be “worth” twice their current market pay rate.
The long-term answer requires a look at both org structure and comp design. First, do your roles need to be split between AI-enabled and traditional positions? This would allow for different productivity expectations and different compensation plans. Second, you need productivity tiers that alter the commission rate and provide a sliding scale you can adjust as conditions change. Whether that means progressive commission rates on GM$ or a matrix that alters the commission rate based on variables such as GM$, load count, or GM% goals, having another lever to pull can make the gear-shifting much smoother as we all accelerate down this unknown highway.
