Friday, June 08, 2012

How Performance-Based Compensation Can Work

Perhaps you’ve noticed that performance-based compensation is one of the hot topics in the ad world right now.  

A recent Association of National Advertisers press release claimed that 2/3rds of global marketers are going to change the way they compensate their agencies.  And, that 49% of marketers now have some sort of performance-based compensation in place.

It sounds like everyone is doing it, doesn’t it?  Until you realize that only 3% of a holding company’s revenue is based on performance.

Why so little?

Is it because agencies know that most of the work they create doesn’t really work?  And if they can charge for time spent by the people assigned to the account, which, in reality, we all know has nothing to do with how well the creative works, then why not?

If that is the case, then perhaps the question that needs to be asked is, what makes creative work?

And, is there a way to tie performance into whatever THAT is?

In my humble opinion, the first thing that creative needs to work is to be seen.  Tough to argue with that.  And I don’t mean seen for one second out of thirty.  That's an impression, worthless in today's digital world.   What I'm talking about is involvement on the part of the viewer.  I mean, if all thirty seconds are viewed, chances of the creative working, i.e. being persuasive, increase.

So what if agencies were held accountable for that?  Not so much the time they spent working on a piece of creative.  But, the time the viewer spent watching it.

What if the performance-based compensation model worked something like this.  The more time the viewer(s) spend with the creative, the more the agency makes.  The less time viewers spend with the creative, the less the agency makes.

Can we measure viewer time spent?


So what’s the hold up?  Well, if an agency is going to be held accountable for viewer time spent, then the marketer needs to allow the agency to have control over how the finished product looks.

In other words, once the strategy is signed off on, and the creative execution agreed to, the marketer’s input diminishes.  No more having a say on the music.  Or, the casting.  Or, how many product shots there are in the final spot.  Or, asking for six different edits to decide which one they like best.

In other words, the marketer needs to give the agency room to fail.  Or, succeed.  On what they, the agency, thinks will work.

Will most clients do that?

Of course not.

But for those that do, think how much better their advertising will be.

Think how much harder their agency will work for them.

in other words, think how their agency's PERFORMANCE will improve.

Which is what any marketer is really paying for with performance-based compensation.

Isn’t it?

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