Accenture Agency Performance and Compensation Management Discussion Jon Walheim October 13, 2008

Table of contents The Importance of Sales Performance Driving Performance Incentive Compensation Incentive Compensation in Insurance Today Accenture and Callidus Callidus Overview Q&A Copyright © 2008 Accenture All Rights Reserved.

The Importance of Sales Performance

Driving Performance

Incentive Compensation

Incentive Compensation in Insurance Today

Accenture and Callidus

Callidus Overview

Q&A

Copyright © 2008 Accenture All Rights Reserved. The Importance of Sales Performance

Copyright © 2008 Accenture All Rights Reserved. Thinking about the overall market place, please select the 3 topics you believe are the most important. Improving sales and service performance and increasing retention are the top priorities for insurers… % Chosen as top 3

Copyright © 2008 Accenture All Rights Reserved. … for both P&C and Life Companies – with a strong focus also on service improvement for Life Companies Life companies Thinking about the overall market place, please select the 3 topics you believe are the most important (% Chosen in top 3) P&C companies

In terms of customers, attracting new customers takes a slight priority over retention of existing clients, in line with growth initiatives focusing on new customers Copyright © 2008 Accenture All Rights Reserved. For each of the following actions, please indicate the level of priority regarding customer acquisition and retention Ranking based on top priority Ranking based on average priority Despite significant investment over past years to develop a customer centric view, getting a 360° view remains in the top 3 priorities along with customer acquisition and retention. 1 2 3 5 7 6 4 8 10 9 12 11 13 14

Despite significant investment over past years to develop a customer centric view, getting a 360° view remains in the top 3 priorities along with customer acquisition and retention.

In terms of expansion and acquisition of distribution channels, insurers’ top priority is to remain focused on their existing channels’ sales effectiveness Copyright © 2008 Accenture All Rights Reserved. For each of the following actions, please indicate the level of priority regarding the expansion and acquisition of distribution channels Ranking based on top priority Ranking based average priority Alternative channels are not easy to develop and are therefore a lower priority for insurers. Internet can be more important in growth development than partnership distribution. 1 5 3 4 6 2 7 8 9

Alternative channels are not easy to develop and are therefore a lower priority for insurers.

Internet can be more important in growth development than partnership distribution.

Copyright © 2008 Accenture All Rights Reserved. For each of the following actions, please indicate the level of priority regarding the expansion and performance improvement of tied channels Ranking based on top priority Insurance companies hope to improve the performance of their current channels through training and systems support Ranking based average priority Insurers will also have to optimize their level of investment based on the profitability of the points of sale. 4 1 2 3 6 5 7 8 9

Insurers will also have to optimize their level of investment based on the profitability of the points of sale.

Copyright © 2008 Accenture All Rights Reserved. Driving Performance

The Goal: Transform Sales Force Behaviors Copyright © 2008 Accenture All Rights Reserved. Sales Transformation must fundamentally change the interaction between the Field Sales person and the customer. Fundamental Unit of Transformation Aligned and Consistent Customer Interaction Target Behaviors Across whole Sales Force = Imagine if … All 15,000 Exclusive Agents exhibit target behavior set XYZ for a customer situation XYZ. No guessing. No interpretation.

Targeting Value in Sales Transformation Copyright © 2008 Accenture All Rights Reserved. Shareholder Value Increase Revenue Decrease Cost Improve Predictability Levers Performance Objectives Sell More to Existing Customers Improve Product / Solution Pricing Retain Profitable Customers Longer Reduce Customer Acquisition Costs Decrease Sales Operations Costs Acquire New Profitable Customers Improve Accuracy of Sales Forecasts Maximize Return on New Product Launches Decrease Direct Selling Costs Increase Consistent Use of Sales Methods/Tools Sample Metrics Customer Churn Market Share Revenue Mix (new vs. existing customers) Average Revenue and Margin Per Customer Average Number of Products Per Customer Revenue Mix (new vs. existing customers) Sales Cycle Time Average Customer Satisfaction Score Average Length of Customer Relationship Average Customer Life-time Value Customer Attrition Rate Average Discount Per Order / Deal Average Margin Per Order / Deal Brand Affinity Reach and Frequency Campaign Response/Closure Rate Percentage of Revenue from New Products Expense to Revenue Ratio Span of Control Time off Territory Time to Proficiency Non-Selling Time Average Acquisition Cost Campaign Response Rate Marketing Return on Investment Expense to Revenue Ratio Direct Sales to Sales Support Ratio Training Costs Span of Control Forecast Accuracy by Quarter Quartiles Number of customer contacts Customer facing contact time Administrative burden Illustrative Win the War For Sales Talent Attrition Rates Time to Proficiency Days Open Positions Onboarding Costs Sell Most Profitable Products/Solutions Product Quota Attainment Margin Generated by Rep Sell Ongoing Maintenance / Service Service Contracts Closed Number of Cross-Channel Leads Generated

Customer Churn

Market Share

Revenue Mix (new vs. existing customers)

Average Revenue and Margin Per Customer

Average Number of Products Per Customer

Revenue Mix (new vs. existing customers)

Sales Cycle Time

Average Customer Satisfaction Score

Average Length of Customer Relationship

Average Customer Life-time Value

Customer Attrition Rate

Average Discount Per Order / Deal

Average Margin Per Order / Deal

Brand Affinity

Reach and Frequency

Campaign Response/Closure Rate

Percentage of Revenue from New Products

Expense to Revenue Ratio

Span of Control

Time off Territory

Time to Proficiency

Non-Selling Time

Average Acquisition Cost

Campaign Response Rate

Marketing Return on Investment

Expense to Revenue Ratio

Direct Sales to Sales Support Ratio

Training Costs

Span of Control

Forecast Accuracy by Quarter Quartiles

Number of customer contacts

Customer facing contact time

Administrative burden

Attrition Rates

Time to Proficiency

Days Open Positions

Onboarding Costs

Product Quota Attainment

Margin Generated by Rep

Service Contracts Closed

Number of Cross-Channel Leads Generated

Performance Drivers Copyright © 2008 Accenture All Rights Reserved. BEHAVIOR Effectively target, define, and run loyalty campaigns Context and Tools Motivation Ability Behavior, and their gaps, are driven by only three factors: Ability, Motivation, and Context. Right Skills to Perform Target Behaviors Right Knowledge to Perform Target Behaviors Right Person into the Right Role Right Work Assigned to the Right People Right Performance Specified and Measured Incented to show Target Behaviors Right Information to Support Target Behaviors Right Tools to Easily Access Information Right Place at the Right Time to Exhibit their Target Behaviors Motivated to show Target Behaviors

Copyright © 2008 Accenture All Rights Reserved. Incentive Compensation

Copyright © 2008 Accenture All Rights Reserved. Brand Management Motivating and Rewarding People Customer Service Turning Customer Info into Insight Attracting and Retaining People Building Selling and Service Skills Strong Value Propositions Partner and Alliance Management eCRM Sales Planning Key Account Management Advertising Customer Retention and Acquisition Managing Product and Service Mix Promotion Ability to Change the organisation New Products and Services Segmentation Building Service Culture Channel Management 1.5 13.0 13.0 12.0 10.0 9.5 9.0 9.0 8.0 7.5 6.0 5.5 5.5 5.0 5.0 5.0 3.5 2.5 2.0 3.0 Potential Dollar Impact in $M on Pre-tax Profit of Moving from Average to High Performance for $1Bn Business Unit - Accenture CRM research ¹ Accenture CRM Research Accenture research ¹ reveals that targeted investments in programs to motivate and reward sales people have the greatest potential to positively impact profits. The Opportunity Potential Return for Investments in Incentive Compensation

Incentive Compensation Management The ultimate objectives of incentive program design Copyright © 2008 Accenture All Rights Reserved. A sales compensation plan should… Reinforce and drive behaviors that help meet management’s overall business objectives . Provide motivating, meaningful and cost-effective rewards to the right people for the right behavior and the right results . Align with clearly articulated sales and sales management roles and accountabilities . Align with other key sales management programs and practices and the desired culture of the sales effort. Be appropriately simple so the plan can be clearly communicated, understood and reinforced. Be managed properly to meet the changing needs of the business. … and be supported by… Flexible tools – deploy technology which dramatically reduces the time to market for changes to incentive plans and special promotions. Predictable models – model and forecast plan changes for macro and plan-level scenarios online, using historical data as needed, to improve predictability.

A sales compensation plan should…

Reinforce and drive behaviors that help meet management’s overall business objectives .

Provide motivating, meaningful and cost-effective rewards to the right people for the right behavior and the right results .

Align with clearly articulated sales and sales management roles and accountabilities .

Align with other key sales management programs and practices and the desired culture of the sales effort.

Be appropriately simple so the plan can be clearly communicated, understood and reinforced.

Be managed properly to meet the changing needs of the business.

… and be supported by…

Flexible tools – deploy technology which dramatically reduces the time to market for changes to incentive plans and special promotions.

Predictable models – model and forecast plan changes for macro and plan-level scenarios online, using historical data as needed, to improve predictability.

Incentive Compensation Management Leading Practices: Incentive Planning and Design Copyright © 2008 Accenture All Rights Reserved. LEADING PRACTICES: Reward top performers - focus on objective setting, raise payout caps to encourage high attainment, and remove unrelated gates from payout rules. Profitable growth - introduce margin-based components as a primary measure. Customer retention - allocate portion of at risk pay toward recurring revenue; specialty sales channels should be compensated largely based on new sales. MBO Bonus Program - set objectives for target sales behaviors against leading indicators, provide self-assessment tools for tracking, and ultimately reward through [ratings-based] MBO Bonus programs. Keep Plans Focused - focus incentive plans on 2-3 [easily tracked] major components with no more than 5-6 total incentive components. Flexible tools – deploy technology which dramatically reduces the time to market for changes to incentive plans and special promotions. Predictable models – model and forecast plan changes for macro and plan-level scenarios online, using historical data as needed, to improve predicatability. Allow incentives to work - avoid mid-year plan changes; don’t remove opportunities to hit annual sales objectives. Current considerations for Insurance related to incentive planning and design include: Equity – Incentive program design does not materially differentiate pay for performance [with the exception of volume] Focus on growth – Incentive plan and measures should align with overall organic growth objectives to help reinforce desired behaviors in the Field Flexibility – Legacy incentive system introduces delays and cost for significant changes

LEADING PRACTICES:

Reward top performers - focus on objective setting, raise payout caps to encourage high attainment, and remove unrelated gates from payout rules.

Profitable growth - introduce margin-based components as a primary measure.

Customer retention - allocate portion of at risk pay toward recurring revenue; specialty sales channels should be compensated largely based on new sales.

MBO Bonus Program - set objectives for target sales behaviors against leading indicators, provide self-assessment tools for tracking, and ultimately reward through [ratings-based] MBO Bonus programs.

Keep Plans Focused - focus incentive plans on 2-3 [easily tracked] major components with no more than 5-6 total incentive components.

Flexible tools – deploy technology which dramatically reduces the time to market for changes to incentive plans and special promotions.

Predictable models – model and forecast plan changes for macro and plan-level scenarios online, using historical data as needed, to improve predicatability.

Allow incentives to work - avoid mid-year plan changes; don’t remove opportunities to hit annual sales objectives.

Equity – Incentive program design does not materially differentiate pay for performance [with the exception of volume]

Focus on growth – Incentive plan and measures should align with overall organic growth objectives to help reinforce desired behaviors in the Field

Flexibility – Legacy incentive system introduces delays and cost for significant changes

Incentive Compensation Management The case for investing to optimize underlying ICM capability Copyright © 2008 Accenture All Rights Reserved. Key Performance Objectives Value Levers ICM Capability Enablers Increase Revenue Decrease Costs ICM Value Tree Sell More to Existing Customers Improve Product / Solution Pricing Maximize Return on New Product Launches Retain Profitable Customers Longer Acquire New Profitable Customers Sell Most Profitable Services/Products Sell Ongoing Service/Maintenance Reduce Customer Acquisition Costs Decrease Direct Selling Costs Client Shareholder Value Flexibility: Incentive Plan Design Timely and efficient implementation of new incentive plans to support business strategy Enable incentive compensation measures and calculations not previously available Improved Insight to Data and Self-Service Tools Reduce shadow accounting with accurate results and traceability. Web-based visibility to incentive results on frequent basis Self-service portal for earnings estimation, claims, and inquiries Integration and Analytics Access to comprehensive data through integration Robust analytics capability Total cost of sales compensation Leading indicators married with performance results Accuracy and Ease of Plan Administration Reduced unearned incentive payments by enabling enforceable recovery rules Reduced operational support requirements from Comp Administrators and IT personnel Repurpose time from cumbersome reconciliation to value-add analysis Plan Modeling Enable plan modeling and robust ‘what-if’ analysis. Dynamic modeling capability to help predict and optimize sales performance. Your ICM technology and process investment should align to the same sales KPOs. Win the War for Sales Talent Increase Consistent Use of Sales Tools/Methods Decrease Sales Operations Costs Improve Sales Forecasts Improve Predictability

Flexibility: Incentive Plan Design

Timely and efficient implementation of new incentive plans to support business strategy

Enable incentive compensation measures and calculations not previously available

Improved Insight to Data and Self-Service Tools

Reduce shadow accounting with accurate results and traceability.

Web-based visibility to incentive results on frequent basis

Self-service portal for earnings estimation, claims, and inquiries

Integration and Analytics

Access to comprehensive data through integration

Robust analytics capability

Total cost of sales compensation

Leading indicators married with performance results

Accuracy and Ease of Plan Administration

Reduced unearned incentive payments by enabling enforceable recovery rules

Reduced operational support requirements from Comp Administrators and IT personnel

Repurpose time from cumbersome reconciliation to value-add analysis

Plan Modeling

Enable plan modeling and robust ‘what-if’ analysis.

Dynamic modeling capability to help predict and optimize sales performance.

Copyright © 2008 Accenture All Rights Reserved. Compensation in Insurance Today

Incentive Compensation Plan Elements Copyright © 2008 Accenture All Rights Reserved. IC Plan Components prevalent in US Insurance: Direct Compensation Commissions on unit or as % of premium Campaign activity comp on unit volume (cross-sells, targeted promotions, prospects, meetings) Bonus/Contingent Commissions End of performance period lump sum Non-compensation incentives Recognition Clubs Competitions Awards Services Agency and Producer Performance Tiers “ Medal” Levels achieved over regular or set-timeframes Correspond to “contracts” or packages of incentives and compensation Qualification Measures Used: Volume Premium per Policy Loss Ratio Application Quality/Adherence to Process Producer Segment Commitment (Forward and meeting prior) Economic Value Added

IC Plan Components prevalent in US Insurance:

Direct Compensation

Commissions on unit or as % of premium

Campaign activity comp on unit volume (cross-sells, targeted promotions, prospects, meetings)

Bonus/Contingent Commissions

End of performance period lump sum

Non-compensation incentives

Recognition Clubs

Competitions

Awards

Services

Agency and Producer Performance Tiers

“ Medal” Levels achieved over regular or set-timeframes

Correspond to “contracts” or packages of incentives and compensation

Qualification Measures Used:

Volume

Premium per Policy

Loss Ratio

Application Quality/Adherence to Process

Producer Segment

Commitment (Forward and meeting prior)

Economic Value Added

Top 10 P&C Carrier Incentive Compensation Plans Copyright © 2008 Accenture All Rights Reserved. Products & Channels Direct Bonus Non-Comp Incentives Agency Performance Tiers Company 1 Personal, Life, Commercial Independent Differ by tier Differ by tier Differ by tier Dependent on prior period EVA, Commitment Met?, Volume, Forward Commitment set in annual planning session Company 2 Personal, Life Exclusive & Direct NB and Renewal differ significantly N/A Based on Balanced Scorecard – Growth, Profitability, X-Selling financial products, Customer Sat N/A Company 3 Personal, Life, Commercial Independent Differ by tier Large comp component, based on EP and loss ratio targets set each year based on market, prospective mix N/A Tier defined by EP, Loss ratio Company 4 Personal, Life, Commercial Exclusive Straight commissions varied annually to move product N/A Volume based, principle promotion tool N/A

Copyright © 2008 Accenture All Rights Reserved. Accenture and Callidus

Why Accenture? Our ICM Offering, People, Assets, and Alliances – Capability based approach Copyright © 2008 Accenture All Rights Reserved. We take a holistic approach to ICM (an integrated portion of our Sales Transformation Offering), leveraging people, assets, and strategic partners to drive value for clients across ICM capabilities. ICM People and Assets Sales Transformation Offering

Mission: To be the partner of choice in ICM with comprehensive vision and offering extending from strategy through delivery and operations. Why Accenture? Our ICM Offering, People, Assets, and Alliances – End-to-end experience enhances all facets of our services Copyright © 2008 Accenture All Rights Reserved. S T R A T E G Y D E L I V E R Y O P E R A T I O N S Value Targeting Diagnostic Compensation Strategy & Plan Design Compensation Organization Design & Benchmarking Business Change Enablement Comp Reporting Data Conversion Program Management Application Management Process Outsourcing Hosting Integration ICM Vision Capability Elements Testing Assets ICM Capability Diagnostic Business Process Design Organization Design Business Case and Benchmarking ICM Solutions Delivery – Systems integration and business transformation ICM Application Management Outsourcing ICM Business Process Operations Outsourcing

Mission: To be the partner of choice in ICM with comprehensive vision and offering extending from strategy through delivery and operations.

ICM Capability Diagnostic

Business Process Design

Organization Design

Business Case and Benchmarking

ICM Solutions Delivery – Systems integration and business transformation

ICM Application Management Outsourcing

ICM Business Process Operations Outsourcing

Copyright © 2008 Accenture All Rights Reserved. Accenture’s Approach Leading Practices for Successful ICM Deployments Our experience leads us to recommend the following leading practices for ICM implementations: Source: Accenture ICM client experience Simplify Operations – Design processes and technology to support an efficient deployment of the ICM solution and optimize future operations. Optimize Controls – Deploy an ICM technology platform and processes which deliver appropriate internal controls. Sales Performance Trumps Efficiency Gain – Don’t chase efficiency gains which compromise sales performance. Enable Flexibility – Ensure that new capabilities deliver improved flexibility and speed to market for changes with appropriate business unit-specific autonomy to effectively manage incentive compensation. Focus on High Payback Functionality – Reexamine current compensation plans, business operations, and functional requirements to ensure the most optimal use of resources (development and ongoing). Safely Empower the Compensation Administrator - Plan and commit to an effective business transformation and learning program. Clearly define roles / responsibilities and establish a more consultative and collaborative application support model. Deliver Reporting Transparency – Improve reporting to develop critical trust with the end users at go-live. Focus on a smaller set of meaningful and impactful reports that improve traceability. Provide Single Source of Performance Results – Provide end users with access to all sales performance results data, sales credits through incentive calculations, in single web portal location together with self service tools. Don’t Get Ahead of the Package – Manage software vendors to shape future product functionality. Clarify difference between vendor roadmap and current offering, secure vendor commitments, and leverage implementation partner relationship to influence vendor delivery of new functionality. Resource Plan with End Game in Mind – Commit Business and IT resources to delivery commensurate with target operating model. Enlist a deeply skilled integration partner to bolster delivery capability and mitigate risk.

Simplify Operations – Design processes and technology to support an efficient deployment of the ICM solution and optimize future operations.

Optimize Controls – Deploy an ICM technology platform and processes which deliver appropriate internal controls.

Sales Performance Trumps Efficiency Gain – Don’t chase efficiency gains which compromise sales performance.

Enable Flexibility – Ensure that new capabilities deliver improved flexibility and speed to market for changes with appropriate business unit-specific autonomy to effectively manage incentive compensation.

Focus on High Payback Functionality – Reexamine current compensation plans, business operations, and functional requirements to ensure the most optimal use of resources (development and ongoing).

Safely Empower the Compensation Administrator - Plan and commit to an effective business transformation and learning program. Clearly define roles / responsibilities and establish a more consultative and collaborative application support model.

Deliver Reporting Transparency – Improve reporting to develop critical trust with the end users at go-live. Focus on a smaller set of meaningful and impactful reports that improve traceability.

Provide Single Source of Performance Results – Provide end users with access to all sales performance results data, sales credits through incentive calculations, in single web portal location together with self service tools.

Don’t Get Ahead of the Package – Manage software vendors to shape future product functionality. Clarify difference between vendor roadmap and current offering, secure vendor commitments, and leverage implementation partner relationship to influence vendor delivery of new functionality.

Resource Plan with End Game in Mind – Commit Business and IT resources to delivery commensurate with target operating model. Enlist a deeply skilled integration partner to bolster delivery capability and mitigate risk.