Jockey is known for its briefs, so it's rather fitting that the brief it gave to ad agencies during a review process last year was a special one.
At the Association of National Advertisers' annual financial conference in Boca Raton, Fla., this week, Jockey told attendees that when it set out to find a new agency to help with a refresh of its brand, a key part of the plan was to find one willing to be paid in a different way.
Speaking during the event, which this year drew some 500 marketers, procurement professionals and agency execs, Jockey CMO Dustin Cohn and the president of his agency of record, Chicago-based TPN, Richard Feitler, touted the benefits of working under a value-based compensation model they call "Accountable Comp."
The duo insisted the model works to mutual benefit for both client and agency. Under the methodology, the agency must earn its entire profit margin based on meeting company goals, and is paid solely based on creative output -- not on hours or full-time employees assigned to the account. Additionally, a dollar amount for what the agency could possibly earn is determined in advance based on a mutually agreed upon scope of work.
"Agency compensation, or our unique spin on it, was not the only criteria in our agency selection process," Mr. Cohn, who has been at Jockey for 16 months after spending time in the private-equity world, told Ad Age . "But it made the pitch more interesting and the proposed work more thoughtful to have the issue of shared and earned rewards stated upfront. In return for agencies putting real skin in the game, we told the agencies they would have a strong voice in setting brand direction with the potential payoff of reaching profit levels significantly above the norm."
For all the talk value-based models have gotten over the years, few marketers have trumpeted success with using them.
At the very same conference in 2009, Coca-Cola made waves with a presentation on value-based compensation, urging the industry at large to adopt models like the one it uses, where agencies merely recoup costs if they don't perform -- but if the work hits top targets, they can achieve a 30% profit markup over their initial costs on a given project, which equates to a 23% profit margin.
Jockey's Mr. Cohn said its Accountable Comp model is more likely to work because it's more collaborative than Coke's or other models that have been talked about in the past. "The biggest difference is that we collaborate with the agency up front on the scope of work and also the metrics," he said. "We don't necessarily dictate those, we work with the agency to create those. By forcing metrics on the agency, how can I ask them to put skin in the game if they don't believe in those metrics and own them with me?"
But, the Accountable Comp he describes seems more simple to enact for a small or mid-sized marketer, and one that doesn't use a host of agencies. Mr. Cohn, who devised the model with the help of consultancy Blamer Partnership, admitted as much. "This model works well when you have one lead agency that has their hands in every aspect of their communications ... it's more simple if you have one lead agency that really is the lynchpin in all your strategic thinking and creative development."
Based on new statistics about the prevalence of such models in the industry, very few marketers are inclined to adopt value-based compensation models.
As the conference was wrapping up on Wednesday morning, the ANA released the results of its first-ever global agency compensation survey, which polled marketers in 40 countries about how they structure and manage payment practices with their agency partners. The study underscored just how little progress the global marketing community has made with regard to new compensation models.
It found that fees are the dominant method of agency compensation globally practiced by 57% of respondents, and an additional 37% utilize fees in combination with commissions. New methods of compensation, such as value-based remuneration, have not taken hold globally, the survey found. Just 4% of respondents reported utilizing them.
"Sometimes I think clients resent agency bonus payments on top of a guaranteed agency profit. That's why I don't think small incentive or bonus programs in most Cost Plus contracts work. They aren't enough. In our case, we are only paying if we reach the desired levels together. So of course, I want to pay the agency its entire markup and bonus if they help me increase business and achieve brand goals," said Mr. Cohn.
Said TPN's Mr. Feitler in the presentation: "I make no bones about this. I am a businessman and the reason why Accountable Comp works for me with Jockey is because of the upside potential of making more money at a higher margin. I also believe we set a stronger foundation for real long-term success for partnership."
At the end of the presentation, the execs recommended that marketers only consider their Accountable Comp model if are willing to give their agency a voice in the scope of work for the brand and the metrics against which they will be judged. They suggested asking the marketing team the following five questions. If the answer is no to any of them, then Jockey's "Accountable Comp" model isn't going to be for you.
1. Is your current agency relationship ready for this level of unvarnished partnership?
2. Does the agency you work with have a spirit of entrepreneurship?
3. Are measurable results a foundation of your agency?
4. As a client, are you ready to pay lower base agency fees, but possibly a higher profit margin when the agency exceeds the metrics?
5. Are you willing, as a client, to give your agency a bigger voice in the management of your brand?