Over the past several years, agencies have been trying to develop compensation models that better reflect the benefit they bring to clients, rather than ones simply tied to hours worked on an account. At the same time, financial pressures on chief marketing officers have allowed procurement executives and compensation consultants to loom ever-larger, encouraging downward pressure on fees.
Brad Brinegar, president-CEO of Havas' McKinney, urged agencies to focus on value instead of price when they are asked about the profit margins built into fee structures. He said his agency is engaged in a variety of alternative arrangements, including deals for stock options and agreements based on the agency's effectiveness. Mr. Brinegar called for more agencies to experiment with similar agreements. "The more we try, the more will stick," he said.
MDC Partners' Crispin Porter & Bogusky, which ditched time sheets six years ago, has crafted a number of alternatives, including fixed fee, equity and barter arrangements, according to VP-Chief Operating Officer Eric Lear.
He also said the agency doesn't give up the rights to its ideas during the pitch process. "We retain ownership of intellectual property unless we're compensated for executing the program."
Mary Baglivo, CEO of Saatchi & Saatchi, New York, said her agency has a sales-based performance agreement with client Procter & Gamble Co. that's "helped to bring more thoughtful and bigger ideas to the table."
In cost-plus agreements, she advocated clearly demarcating the scope of work and outcome when contracting with the client, in order to help control costs. "How can you not make money on cost-plus? Only if you don't know your costs or what you're costing out?"