Financial Return

Lloyd's is a financial institution and therefore measures performance in financial terms. The  benefits of recruiting, employing and training high quality professionals in Lloyd's can far outweigh their costs.

Full costs of employment

The full costs of employing a professional are usually underestimated.  When all overheads are considered (including such items as office accommodation, pensions, bonuses, additional remuneration / package benefits, infrastructure and computer services), full employment costs for professionals are usually in the region of
three times basic salary.  

Full Costs of Employment = approx 3 x Base Salary

Value delivered must = Full Costs of Employment

Applying this multiplier to a basic salary of £75,000, for, say, a Class Underwriter, means that £225,000 of value has to be added by the individual, just to cover their costs. For Apprentice Underwriters this basic salary figure will be lower (in the range of £25,000 to £35,000) and multiplied values will vary accordingly.

Individual differences in performance are also often underestimated. When the performance of a large number of people doing the same job is measured and charted, performance is found to be normally distributed.

A seminal study found that the relative size of performance differences was closely linked to the relative complexity of the job.

These conclusions were drawn from the seminal study in this area, even though it was conducted over 30 years ago, and they appear to have stood the test of time.  Indeed, the trend since then seems to be for professional roles to become increasingly complex and for performance differences to increase to an even greater extent.

Subsequent studies in UK financial services companies ... then a high performing professional in front-line financial services will deliver twice as much as the average - in this example, a minimum of £225,000 more of value each etc.

In Financial Services, High Performing Professionals deliver twice as much as average performers

For those roles involving the deployment of large amounts of capital (e.g. Lloyd's Market underwriting or investment fund management) the impact of the provision of the capital itself has a major effect and the most recent research suggests that this is a factor of 10.

In Capital Deployment jobs the value added by professionals is multiplied by 10

In the example cited, if the job is responsible for the deployment of capital, then the additional multiplier means the performance difference in value created can amount to £2.25 million each year.  These estimates are usually conservative.

These costs and returns vary across different organisations and lines of business, but, as a rule of thumb, an underwriter paid £75,000 per annum basic salary should optimally deliver approximately £2.25 million a year in added value to cover the costs of employing them and the minimum expected return on the capital they are deploying.

A really high performing underwriter will deliver at least twice as much value as indicated by these figures.

Obviously, there are more people than the underwriters involved in this process, but success is largely dependent on the individual underwriter exercising the right, sound professional judgement.

The financial return for hiring and developing high performing staff is significant and measurable.

For more on the costs and benefits of employment contact Jim Osler of The Osler Partnership Limited.