101 London's Steve Waring gives his verdict on last week's Performance Adaptathon as the industry looks to change time-based models.
There has been a raft of recent activity around the topic of agency fees and, in particular, the issue of time-based remuneration.
1) Campaign's question of "Are agency timesheets now obsolete?"
2) Last Tuesday’s IPA Performance Adaptathon on this topic.
This debate is being driven, in large part, by an increasing despair that the current remuneration methodology, and the impact of client procurement practices, is leading us inexorably into a race to the bottom and offers scant reward for the benefits we bring to our client's businesses.
The debate started with a healthy provocation, outlining all that is wrong with time-based remuneration and all the speakers did an excellent job on this subject – so far so good.
It also helpfully pulled out what the essential elements are in building an ideal remuneration methodology:
- An ability to isolate and measure the impact of the communications on the business objective.
- A system that pays out over the time frame that the communications have an impact on (several years as evidenced by Peter Field’s presentation).
- That is capable of incentivising agencies paying substantially enhanced fees for results, whilst requiring skin in the game from agencies so they properly share risk and reward.
- One that is flexible enough to adapt to changes in scope, that differentiates between delays caused by agency inefficiency and those caused by client changes and processes.
Then the debate moved into inspiration where agencies that styled themselves pioneers in this field took the stage and took us through the journey that they had been on and we waited expectantly.
Unfortunately, though, despite some robust challenges from presenter Evan Davis, who did an excellent job chairing the event, they were unable to offer any real evidence that they had managed to alight upon an alternative workable mainstream methodology.
Further, in questioning and in coffee breaks, the building blocks that had been advanced started to crumble.
“It’s impossible to isolate the impact of advertising on the business outcome."
“It’s not possible for me to commit to a payment to an agency outside of the current business cycle so, whilst I agree that the impact is felt over several years, I can’t reward over that timeframe."
“I am a small business owner providing advertising services with people to pay, not a venture capitalist investing in the success of my clients."
“I’m limited in the upside I’m able to offer my agency. I’ve got fixed budgets so my ability to reward is very limited."
It left me wondering whether there was a real danger in the debate, that we end up in the same loops we’ve been going through in the last decade or so in a futile search for a panacea that doesn’t exist.
Helpfully, there was an audio presentation from Tim Williams that offered some real world examples of alternative models from the US. It was a breakneck presentation, but the conclusion seemed to be that there were credible alternatives for remunerating some of the services a modern advertising agency provides.
For example, in the areas of co-creating technology and new product launches, there were excellent examples of non time-based remuneration agreements.
The conclusions seemed to be:
- Time-based remuneration will be a big part of the remuneration mix for the foreseeable future.
- The performance element of fees is likely to grow.
- Agencies need to have a suite of remuneration methodologies and be open on the subject, as its clear it’s a live issue amongst our client bases.
Perhaps agencies need to have their own version of Coca Cola's 70:20:10 applied to the remuneration methodologies they use.
Given that everyone seems agreed that time-based remuneration will continue to be a big part of the remuneration mix, the one disappointment of what was a great day, is that we only scratched at the surface of talking about how we eradicate some of the harmful ways that we’ve allowed time-based methodologies to be implemented but that’s a subject for another day.
Finally, I wanted to end the blog with a heartfelt thank you to Ian Priest and the IPA for putting on such an excellent debate.
Steve Waring is Founding Partner of 101 London and former chair of the IPA Finance Policy Group.
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Last updated 15/07/2014