The following article appeared in AdAge and we acknowledge the author’s consent to repurpose it for AdLaw By Request.
Much has been presented and written about the increasing use and success of performance incentives in the Client/Agency relationship. Industry bellwethers P&G and Coca-Cola, and more recently Intel, are all touting and branding their own versions of “value-based” compensation. Regardless of what you may call it, be it pay-for-performance, enhanced profitability, or just plain incentive compensation, these are all just words meaning different things to different people. What is clear is that beyond the major creative and media advertising relationships, the use of performance incentives of any type is paltry, at best. Results from the ANA’s triennial Trends in Agency Compensation Survey, published last year, indicate that other marketing services, such as Interactive / Internet / Digital show a 14% utilization of Agency performance incentives, going all the way down to merely 2% for Public Relations firms. (Other marketing disciplines falling between these lows are Promotion / Event Marketing, Multicultural, and Direct Marketing.)
So what are the reasons for the disparity in the adoption of these much publicized arrangements that marketers profess are leading to Agency performance and overall relationship improvements? Many of them can be traced to a reluctance by the service provider community — in particular executive management and that “new” Agency stakeholder, the CFO — to embrace placing any compensation at risk in categories where results are difficult to measure and an Agency’s impact on marketers’ key performance indicators is suspect. All too often, and mainly due to insufficient trust in the relationship, Agency management view these arrangements as marketers’ way (and Client Procurement) to gain unnecessary transparency, to give them a “haircut,” or to make promises which they may or may not choose to fulfill. This situation is most acute in the Public Relations discipline, where firms of all sizes, whether independent or part of a holding company, are stubbornly refusing to play and/or clinging to a remuneration model which Client Procurement and Strategic Sourcing are scratching their collective heads to logically understand.