P&G will test fees and incentives for agencies

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Procter & Gamble Co. will test fee-based and incentive compensation systems to replace its old commission structure starting in January. The package goods giant may also relax its strict conflict policy as its Agency Relationship Renewal effort enters a second year.

Each of P&G's seven roster shops will test the new compensation with one of its assigned brands, with the test lasting through 1999--or until a "renewal team" of P&G executives and agency representatives determines what works best.

P&G would not divulge which brands would be involved in the test or details of the compensation systems. But it said the systems would be "media neutral," designed to reward agencies for developing "holistic marketing ideas and increased sales revenue."

To further that approach, an industry-watcher said P&G will announce next month a relaxation of its strict conflict policy, designed to allow roster shops the flexibility to make the mergers and acquisitions needed to broaden their global and tactical reach.


"Working more effectively together with our agencies to produce business-building advertising faster is what [Agency Renewal] is all about," a P&G spokeswoman said. "If we determine changing the conflict policy will help us deliver that goal, then we'll take a look at that."

P&G ad and media executives have long known the commission system creates a bias toward certain media, TV in particular, according to former P&G executives.

In theory, a system based on performance incentives would encourage agencies to develop more targeted advertising approaches or use lower-cost media, including ones that weren't formerly "commissionable," such as in-store advertising.

One P&G agency executive said: "You've got to credit them for trying to break out of the mold," but added, "Is Procter really ready to market their brands differently?"

In a prepared statement, executives of P&G's agencies all supported the test. Pat McGrath, chairman-CEO of Jordan McGrath Case & Partners, New York, said: "The idea of doing more creative advertising, enhancing our potential for revenue growth and having more fun too, gives new meaning to the expression `Is this a great idea or what?' "

Consultants and former P&G executives, however, said the new system also clearly holds the potential for lowering agency revenues.

Along with the compensation test, P&G has launched a streamlined way of doing business with agencies, designed to cut the ad development cycle in half. And one former P&G executive said the fee-based approach would be designed to penalize managers who drag out development times.

Among the changes designed to speed P&G processes will be smaller client-agency teams and single-point decisionmaking at P&G. Though the management level of the decisionmaker will vary depending on the project, a spokeswoman said the person making the final call on ads will be someone involved throughout the process of creating them.

Contributing: Mercedes M. Cardona.

Copyright November 1998, Crain Communications Inc.

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