Tag Archives: bonus compensation

Incenting Extraordinary Agency Performance

15 Oct

performance incentive compensationThe ANA’s 2012 “Trends in Agency Compensation” survey found that forty-nine percent of the advertiser’s surveyed utilized “performance based compensation” as part of their agency remuneration programs.  Further, of those advertisers using performance incentives, two-thirds noticed an improvement in agency performance.

However, like most issues, incenting extraordinary agency performance isn’t as simple as throwing more money at it.  A study by the 4A’s found that performance incentives accounted for approximately three percent of agency holding company revenues.  So it is highly unlikely that the implementation of a performance incentive program, in and of itself, will achieve the desired results when it comes to elevating agency performance. 

We believe that there are six keys to incenting extraordinary performance:

  1. Clear delineation of agency roles & responsibilities
  2. Alignment of agency resource investment with client  goals
  3. Establishing performance expectations for each agency
  4. Non-monetary incentives
  5. Incentive compensation
  6. Systematic performance monitoring

Based upon our experience, driving agency performance is a process which requires teamwork within the client organization and between client and agency.  Further, the process is one that relies heavily on non-monetary incentives to balance the relationship.   Non-monetary incentives include intangible relationship attributes such as; stability, communication, access and respect. 

Why are these attributes important to an agency?  For an agency to deliver extraordinary performance, it requires an investment of both strategic and executional resources and a commitment to assembling and retaining the best and brightest account team available within the agency to assist the client in achieving superior results.  An agency is much more willing to make that commitment if it is confident that it can realize a return on their investment.  If agency management senses that their insights and recommendations are desired and valued by the client, that they have access to and the respect of senior client management and that the agency is viewed as a valued partner rather than a vendor this leads to a stable relationship which has the ability to withstand the test of time.

Client-side procurement professionals have access to a number of tools that can aid and abet the organizations desire to generate a greater return on its agency network fee investment.  These include the following instruments and processes:

  • Clear, concise, client-centric contracts and statements of work
  • The inclusion of a “Right to Audit” clause within the LOA
  • Identification of a reporting and control process to monitor performance
  • Utilization of a 360° agency evaluation process
  • Customized agency remuneration programs for each agency

These tools are beneficial to both the client and agency teams in establishing expectations and creating a transparent environment which encourages both parties to discuss progress and address concerns immediately, rather than letting issues fester and become a detriment to the relationship.   

Change in an advertiser’s marketing services network is expensive and can create risks.  Considering the relatively short tenure of a CMO, 23 months according to Spencer Stuart and the decline in the length of client-agency relationships (estimated to be less than 3 years, down from 7+ years in 1984) action must be taken by the client organization to mitigate those risks.  It would certainly appear as though the reduction in CMO tenure is contributory to shorter client-agency relationships.  Too often when we learn about a “changing of the guard” in the marketing C-suite this is followed by the announcement of an agency review.  

In order to break this cycle change for change sake, client organizations should view their marketing services agency networks as a “corporate asset.”   This perspective can positively shape the client’s agency stewardship approach, involving a multi-functional team comprised of representatives from across the organization.  The shared corporate responsibility for nurturing the growth and contribution of the marketing services agencies can elevate the asset value of the network while directly supporting the CMO’s demand generation and brand building efforts. 

A “well-oiled” agency network operates more efficiently.  Combined with a contract compliance and performance monitoring program the approach can lead to extraordinary performance and enterprise savings.  Consider the results of a recent study conducted by the procurement outsourcing group Proxima which surveyed 300 London-listed companies.  Their research found that; “a one percent reduction in non-labor costs could boost average annual earnings before interest, tax, depreciation and amortization by 3.6%.”

If you’re interested in learning more about how your organization can incent extraordinary agency performance, contact Cliff Campeau, Principal at AARM at [email protected] for a complimentary consultation.

Do Performance Incentives Have a Place In Agency Remuneration Systems?

1 Oct

Agency Performance CompensationThe direct answer is “yes” bonus compensation systems can be a viable means of incenting proper resource allocation decisions, behavior and performance among an advertiser’s agency network… just as they are with driving employee performance within an organization.

Perhaps a better question is; “What type of outcomes should be recognized?”  While the answer to that important question will vary by advertiser, as Stephen Covey wisely stated:  “Begin with the end in mind.”

This is clearly the case in designing performance compensation systems for marketing services agencies.  Properly structured, incentive compensation systems are an excellent tool for aligning an advertiser’s agency network partners with the organization’s long-term business goals.  Yes, that’s right, long-term goals.  That is not to minimize the importance of the near-term sales and profit needs of the business and the role that marketing communications can play in successfully realizing those goals, but those outcomes should be the focus of the “base pay” portion of an agency remuneration system.  A solid base compensation program is a requisite first step toward insuring that an agency makes the appropriate investment in staffing, consumer research & analytics, market insights and efficiency enhancing technology tools necessary to achieve next quarter’s demand generation goals. 

Securing agency “buy-in” and participation in supporting the broader strategic objectives of the organization are essential for long-term brand health and market share success.  This is where we believe a performance compensation program should be focused.  Too often we have seen incentive programs focus on tactical or executional outcomes at the expense of tapping into an agency’s strategic reserves as a means of upping the value of their contribution to an organization’s long-term success. 

One of the keys to success in this area is to involve the top management of both the advertiser and the agency.  Bringing senior management together to discuss the client’s vision for success, business goals and the performance criteria that should be put in place to assess progress has a dual benefit.  One, it can elevate the perspective of the agency from “vendor” to “partner” status in the eyes of the client’s management team and gain their appreciation for the agency’s strategic capabilities.  Secondly, the opportunity for a broader level of “strategic engagement” with a client can be an incredibly compelling proposition for senior agency management.  In turn, the combination of the respect exhibited by the client for the agency’s ability to contribute and the corresponding financial reward tied to their mutual success will fuel an agency to make the desired resource investment.

When structuring the performance criteria for an incentive compensation program, the need to blend both quantitative and qualitative measures is very real.  While written in the context of organization’s incenting their employees to take a long-term perspective, we were intrigued with a recent article in the McKinsey Quarterly and its relevancy to this topic.  Entitled; “Encouraging Your People to Take the Long View” authors Gibbs, Heywood and Pettigrew surmised that “over time, traditional hard performance metrics can encourage short-term success at the expense of an organization’s long-term health.”  However, they recognized that both measuring and strengthening the “capabilities that help companies thrive over the long haul” can be challenging.  Their answer?  Structure an evaluation process that effectively assesses contributions to “corporate health” by embracing the following principles:

1) Root-Out Unhealthy Habits 

2) Prioritize Values

3) Keep it Simple

We would certainly echo the notion of “simplicity.”  Too often in our contract compliance auditing practice, we encounter incentive compensation systems that are confusing, overly complex and metric laden to the point that they may incent very little in the way of extraordinary performance.

Finally, we would recommend integrating an annual client-agency 360° evaluation process that involves the same senior managers that were party to constructing the terms of the performance compensation program.  The ability to mutually assess progress and to identify areas for refinement in the coming months can boost the chances for successfully achieving the client’s goals and for building the client-agency relationship. 

Interested in learning more about the role of performance compensation programs in agency remuneration systems?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at [email protected] for a complimentary consultation. 

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