Tuesday, April 28, 2009

Pay for Performance

There's an interesting article in Ad Age today. Coke, it seems, is pushing "value-based agency compensation". Just as Procter & Gamble has done before it.

It's not really a new idea. Performance-based compensation has been around for a long time and, if it's set up properly, I don't think anybody in the agency world would have a problem with it. After all, under this model, the more success you bring the client, the more you profit.

You can read all about it here , but basically, Coke will determine the value of assignments based on a range of factors. The agency's performance and the business results that follow determine what, if anything, the agency gets paid beyond its upfront costs. The agency can to make as much as 30% on a project. Or no profit at all.

Speaking for N+H (although I didn't ask N ahead of time) I think we'd be happy to be paid on a sliding scale based on how well the work we do succeeds. Most people I know would. But there's a snag in this model. If you're going to be held financially accountable for the work you do and your profitability depends on it, then the agency has to have a lot of control over things it often has little control over now.

Up front, it means both parties have to agree on the goals and how they will be measured. It also means creative and media strategies don't get killed for bad reasons. The project isn't underfunded. Concepts don't get revised or diluted. It means clients don't pass the work around the office and send back a list of changes based on what the boys in the back room think an ad or spot ought to be. Or even what the thing itself ought to be. It also means the agency ought to have some say in things like pricing. And customer service. The best ad campaign on the planet won't move the needle much for a product or service that is overpriced. Or for a company that treats its customers poorly. The point is, with accountability has to come a measure of control. Otherwise, it's a stacked deck.

As one commenter on Ad Age (Charlie of Indianapolis) said : "I don't see much mention of the client responsibility in this relationship. If the agency is going to be held accountable to results, then the client must be willing to go out on that creative limb with them. Marketers can not fear failure to protect careers such that the creative product is diluted to absolute safety." A guy from Winston-Salem (andrewcoleman) said "I don't mind being judged by my work; I just want to fall on my own sword." I'm with you there.

Here's a short story. Probably 13 years ago, we were trying to get in to do some work for a chain of local chili parlors. The marketing guy told the others in management that the thing to do would be to "let these folks do whatever they think it right and judge them on that", or words to that effect. We leaped at it. And our first and second concepts were shot down. Then the third one was revised and edited by the client to a point that we certainly knew it wouldn't work. Our bad for just going along. It wasn't what we thought was right, but what we thought was right as diluted and modified -- and then judged -- by them. Lesson learned. The effort didn't bring in the desired results, and I'll bet anybody reading this can guess where the blame was placed. I'll repeat: lesson learned.

Performance-based compensation is an interesting discussion, and one worth having. Like I said, I know that our agency would be happy to talk about performance-based compensation but with some caveats. Oh, we're not looking to shirk responsibility for what we do. But we don't want to be judged on something where there are critical factors beyond our control.

All that said, I think some form of performance-based compensation is a good thing. I mean, why the hell not?

Maybe we'll convene a group of agency folk and client-types one morning over coffee and doughnuts and talk about it.

Want to come?

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