Ad services holding companies and agencies are in the throes of technology-driven operational changes and restructuring for a client-centric future in which there will be many more competitors from outside the agency world. And with this shift will come new compensation models.
In 10 years, agencies will be taking on more risk for more potential upside, according to a number of industry executives. That means more agency pay will be tied to key performance indicators such as sales, as opposed to predetermined fees for labor, said most of the executives. Still, the perfect model is many years off. For now, here are a few predictions:
Harris Diamond, CEO, McCann:
"Financial structures changed dramatically when we went from a commission base to an hourly base," he said. "My guess is we'll continue on hourly base with more of a performance component."
Maurice Levy, Chief Executive, Publicis Groupe:
"The current way of being compensated is misery, and it's unfair, because we are compensated for time, and what we are bringing has more value than time." Mr. Levy wants agencies to have skin in the game and take more risk.
Marc Pritchard, Global Marketing and Brand Building Officer, Procter & Gamble:
Sticking to the principle that "our agencies are our partners and we are looking to create joint value" will then bring about different approaches in terms of compensation," said Mr. Pritchard. "We'll see some innovation over the next several years." That could mean not only to pay for specific services, but also to provide incentives for sales creation as result of the work, he said. "That is the ideal if we can get there."
Wendy Clark, President-CEO, North America, DDB:
"With clients seeking and needing more efficiency and speed in their business, many of the things that we've been holding onto will have to change," said Ms. Clark. "Accounts are structured around efficiency and creative agencies, and clients will have to get used to work that's not as highly produced as the traditional big iconic work." As both agency and client look for cost-efficiencies while continuing to push for faster, better work, "impact" will be a bigger part of the discussion, said Ms. Clark.
Scott Hagedorn, Founder and CEO, Hearts & Science:
"The media business is evolving into us thinking about creating audiences out of behavioral data, and writing the algorithms to bid on audiences rather than replacing [full-time employees.] Agency [intellectual property] will be business rules and algorithms we create. I still see us working on an FTE basis, but potentially getting paid royalties from IP, from an algorithm perspective we have."
Jacki Kelley, Chief Operating Officer, Bloomberg Media:
Pay-for-performance "can happen to a degree," said Ms. Kelly. When she ran IPG media agency, UM, she had pushed for more performance-based contracts, and incentivized some of her own people to work more like salespeople. "For a majority of clients, it was hard to budget for a win for your agency even if sales go up significantly," she said.