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Report looks at the different remuneration models in use by region and by agency type
On Tuesday 29th April, WFA released its 2014 report on “Global Agency Remuneration Trends and the use of performance metrics“. The report is based on a survey conducted early in 2014 which received responses from 43 WFA member companies, most of which were global marketing procurement specialists.
The report looks at the different remuneration models in use by region and by agency type, and for the first time ever, looks at over 28 common performance metrics and how their weighing can be adjusted and balanced across performance components as a whole.
Carried out in conjunction with global media management consultancy ID Comms, the survey shows that advertisers are increasingly looking to align agency interests with their business KPIs by giving them the chance to boost their income, if they can deliver additional value.
Eleven per cent of respondents already feature performance-based elements in their contracts (up from 7% in 2011). A further 37% of those surveyed saying they planned to implement performance incentives, 36% said they wanted to explore value-based compensation and 66% said they wanted to link agency income more closely to their own performance.
WFA members recommend the following best-practice advice:
- Start with the basics. Don’t try to create any new business models until you have the foundations in place. That means competitive agency rates and transparency on costs with your agency. Then other models can be built from understanding these fundamentals.
- Get senior marketing, procurement and finance stakeholder support. PBR models can impact the profitability of your relationship with the agency and this can change more the just the financial dynamics. Likewise, contracts and SLAs need to be changed to reflect progression within remuneration models.
- Develop relevant KPIs with the agency and make them measurable. Then make sure you measure them. Don’t confuse poor brand performance with poor agency performance, as it is often easier to blame your agency than look internally for faults or shortcomings. Ensure fairness.
- The PBR component ratio needs to be big enough to motivate the agency. There should be the possibility for the agency to achieve extra profit, otherwise the PBR won’t be attractive but in fact actually demotivating.
- Link agency bonuses with your own key business performance indicators (i.e. market share). Aligning to your company objectives can only bring agencies closer to your business, which is where they need to be to do their best work.
- Keep it simple and don’t over-complicate. The easier it is to understand, the easier it is for both client and agency to get on with the business of creating exemplary work. Keep a track of the different metrics being used and the resources needed to measure them (e.g. where does the data come from? And by when?). Ask your agency what they want to be measured on and make sure they are fully bought-in.
- Every performance based remuneration model should ensure it is designed to help make agencies work better together. Agencies should be incentivised to do this.
- Be conscious of what models you are using. Different schools of thought suggest you should either use the same models for all of your agencies, or use different ones depending on what service that agency is providing. Whichever option you choose, make sure it is deliberate and done for a reason.
- Consider the “what-ifs”. Example: if the target is 100, what happens if the agency gets to 99.5? What happens when the scope of work changes for the third time? Have you budgeted for the agency meeting 100% of their potential earnings? Etc.
- Clients should want agencies to be profitable businesses that attract great talent. Understanding that agencies need margin and profit in order to be run effectively is vital. However, marketers should not shy away from requiring transparency within cost structures and getting robust external benchmarks to be able to compare costs.