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Seven tips for more effective agency compensation
The challenges facing brands wanting to get their agency compensation right were addressed at our last two Sourcing Forums: in Dusseldorf last month, where our community of senior global marketing sourcing experts met at Henkel HQ but also yesterday in NYC, where we’ve been kindly hosted by Pfizer in their HQ.
Simon Francis and Maarten Albarda from Flock Associates both shared their view on agency remuneration schemes in an ever-changing agency landscape and revealed their seven top tips for more effective compensation:
- Get alignment on the overall objectives and priorities (Service, Savings and Performance).
Simon and Maarten often see client appraisal and remuneration schemes that are not aligned with the strategic direction the company has set. Frequently procurement and marketing are not aligned on the same goals – leading to mis-directed agency relationships.
- Decide what is right for the future by agency discipline.
It is important to reflect the role of each communication channel in the marketing mix and find the key performance indicators for each. It is best to consider each channel’s (and hence each agency’s) role in the future and identify the key performance indicator that best reflects this role.
- Then look to link, harmonise, align and simplify into one framework.
Once you have identified the KPIs by communication channel and agency, you may find that they can be linked or simplified to help align agencies towards joint goals. Of course, outcomes such as sales and shares can unite agencies but measures like brand health, cost per awareness, cost per click, engagement scores, and open rates can also unite agencies on shared goals.
- Do the hard work yourself, it gives you control.
Each advertiser needs to devise the system that meets its needs, and devise the KPIs itself, before sharing with its agency partners. Too often advertisers simply ask the agencies to devise a scheme, or fails to drive the accountability that advertisers should demand.
- Negotiate then partner.
Flock Associates believes in advertisers working in close partnerships with agencies. However, setting KPIs and new outcome and output-based remuneration systems isn’t a game. It is worth treating it as a formal exercise, one that is distinct from the day-to-day relationship. Procurement must play the role of project manager and run a tight process to make sure that any change to appraisal, remuneration and contracts has momentum and meets the timing plan.
- Use technology (not just excel!).
Too many appraisal and performance-related pay systems are admin heavy, using paper-based questionnaires, reports and manual performance dashboards. Sophisticated systems need not take more time – in fact, they may take less – if a smart appraisal tool and performance dashboard is created. These technologically driven tools have the advantage of offering transparency to all parties.
- Have time and budget for communication, roll-out, training, refining, governance, and trouble-shooting.
Many projects fail to allow time to implement a scheme. Especially for large global advertisers, it takes effort to change systems, and train new joiners. Picking the KPIs and setting up outcome dashboards and appraisal schemes are only half the task. Success will depend on a great “roll out”. Make sure your project time and cost allows for this.
Advertisers need to consider all the options to identify the best solution for them. You need to think about how you are using KPIs and appraisals to trigger or unlock bonuses, what minimum standards exist to confirm a base level of margin or to open the gate to the possibility of higher remuneration.
For more information on the remuneration models discussed during these two sessions, please contact me at firstname.lastname@example.org
For more information or questions, please contact Laura Forcetti