ID Comms

Are clients’ performance incentives for agencies a complete waste of time and money?

Surveys of this and that are spewing out of the ANA (Association of National Advertisers) Financial Management Conference in Florida, as they do on these occasions.

One survey of the big advertisers present says that 65 per cent of them plan to reduce or restructure ‘agency compensation,’ but then such surveys always do. Which rather suggests that nothing much happens after the survey has been completed.

Rather more interestingly, 24 per cent of them say they plan to include ‘performance incentives’ into their plans, which advertisers have also been saying for years. The sum of advertisers ‘planning’ to do this over the last decade or so must be around 2000 per cent. According to the ANA the number of big US advertisers using such incentives rose from 46 per cent in 2010 to 49 per cent this year.

Well, I suppose that’s a fact.

Here’s another one, from a 4A’s survey: performance incentives account for just three per cent of holding company revenues. Three per cent!

So what ecactly, you may ask, is the point of performance incentives? Either agencies are signally failing to perform or the targets set are unachievable. Or maybe achieving the targets results in such piddling rewards that nobody bothers with them very much. Is the real point to allow the CMO to show the CFO (and ultimately the CEO) that he or she is trying to do something? And then it all gets kicked into the long grass until the next survey comes round.

But all this stuff costs money, not least in payments to the serried ranks of auditors like Accenture and Ebiquity who get paid handsomely for coming up with these schemes. And lots of client time too, which might be better spent on nurturing more compelling communications.

The other aspect to this is the way it extends, complicates and generally buggers up pitches. One consultant told me recently that, by the time a winning agency (of any description, creative, media or whatever) is eventually publicly annointed there’s usually been so much eyeball-to-eyeball horse trading than neither party can stand each other.

The recent $3bn General Motors media pitch, won by Carat, may be a case in point. Carat ‘won’ the pitch in December 2011 but the decision wasn’t made public until February this year when it emerged that it had agreed for work on a cost-only basis for two years. Did relations between GM CMO Joel Ewanick and whoever did the deal at Carat (Aegis CEO Jerry Buhlmann ultimately, presumably) improve during this period?

Aegis, by the way, hotly denies any such deal even though it’s hardly shocking or even that surprising in today’s ‘low costs at any costs’ environment.

It does all seem to be a case of turning what should be a relatively simple matter (paying your agency properly while keeping your costs in check) into something fiendishly complex and ultimately pointless.

But that’s what a lot of clients seem to want to do these days.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.

2 comments

  1. Contrary to the possible impression left by this piece, the vast majority of Ebiquity’s clients have a performance-related component in their client contracts, and have done for years. In other words, they can earn significant bonuses for superior performance in media delivery.

    This may be confused with the survey which was about payment by results, which is based on business performance.

    As to the unattributed pitch consultant, this isn’t our experience at all and we handle many. We’ve never seen a situation in many years of being at the centre of pitches where the client and agency disagree to the extent suggested here.

    I didn’t see it in nearly 30 years in agencies either.

    Nick Manning

  2. Different to Nick, I do recognise some of what you describe Stephen. Our experience has been that agencies’ performance-based income is often tokenism, a gesture made at pitch and a procurement friendly mechanic to tart up the terms. When I was on the agency side, we usually assumed we would get 100% of the PRIP because the metrics were usually pretty flexible and easy to hit / fudge.
    In practice, now a consultant for international media leaders, I agree these things can sometimes cost more to implement than they incentivise. I’ve recently heard direct from a large UK client that they have to pay their media auditor more money for doing the agency’s cost-evaluation than the total amount of their agency’s maximum bonus. Clearly this is not an acceptable or sustainable way of incentivising agency performance. Sure and agency should be evaluated properly and this will have some management or consultant costs, but that evaluation should be focused on a broader agency performance than just reducing media costs.
    We believe that the traditional media cost audit is an inadequate way to hold agencies to account. We encourage our client to focus more on setting ambitious strategic objectives for the agency and then evaluating them on a broader set of criteria that doesn’t just incentivise the agency in a race to the bottom on costs for example.

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