Joe Plumeri explains why Willis is not supporting supplemental compensations
Supplemental compensation is a subject that I am absolutely passionate about and I am adamant Willis is doing the right thing by rejecting them outright.
We looked at the proposed supplemental compensation plans very closely and decided they would not be able to deliver a conflict-free environment for our clients. For us the client is paramount in everything we do and we want to ensure that we act in their best interests at all times.
While various regulators have put their respective stamp of approval on such agreements, we hold ourselves to a higher standard of acting on our principles. This means not taking them because we believe it is wrong rather than accepting them because someone told us it would be alright for us to do so.
The proposed plans include performance-driven elements that make lump-sum payments contingent on factors such as retention, growth and profitability. As a result, these features render contingent commission plans incompatible with conflict-free transparency.
Additionally, our decision to reject the plans also took into account the inconsistency supplemental compensation would present compared with our Willis Quality Index initiative. This project’s core objective is to ensure that client programmes are placed with carriers based on product quality and performance.
“I don’t believe this was the solution that Eliot Spitzer and Jim Hatch envisaged when they took the action they did in the autumn of 2004
Joe Plumeri, Chairman and CEO, Willis.
In addition to our own views on this matter, we engage in continuous discussion with our clients so that we can understand the industry issues that affect them. They have told us categorically that they do not like the proposed supplemental compensation arrangements. This is a very clear message and one that we will not ignore.
What’s more, I don’t believe this was the solution that Eliot Spitzer and Jim Hatch envisaged when they took the action they did in the autumn of 2004. It seems to me that supplemental compensation proposals are really contingent commissions by another name, and set us back relative to the progress we have made in transparency as an industry over the last three years. The ultimate outcome is that clients have renewed confidence and faith in the industry. This has got to be the key objective for all of us.
Willis did suggest an alternative approach involving enhanced up-front commissions. These would have approximated the revenue that would be paid through their proposals. The difference is that our plans were simply based on business placed today rather than based on a retrospective (supplemental) or prospective (contingent) formula. If the proposals were to be amended so that they met our requirements, or if other carriers present different plans, we are open to discussion.
If you deliver value, you can fully expect to be paid, and paid well, for the service, advice and resources you afford the client. And in doing what is right for our clients, we believe we will win over the long-term. Because running a good, sound business is the foundation of our success, and in turn, the success of our shareholders.