As Peter told me: "If we are really serious about being our clients' partners, we have to be as accountable for our results as our clients are for their results-sharing in the rewards and the risks. Performance-based compensation is the most powerful expression of accountability for an agency or for a client executive."
One reason Y&R may be ahead of the pack in forging pay-for-performance deals is that the agency doesn't wait around until it can isolate the agency's contribution to overall brand objectives. "It's an unreasonable concern" to try to do so, Peter told me.
He said Y&R sees itself evaluated by a combination of measurements-some very specific to its duties and others broad gauges of its clients' overall market performance.
"While marketing and communications don't represent the only impact on our clients' business, this is a minor concern to us. What is major, however, is aligning ourselves with our clients' agendas for building business. Whether our efforts represent 30% or 70% of the final outcome, this common agenda will give our clients' brands" the best chance for success. And, as a by-product "we're able to influence the client beyond the scope of our responsibility," Peter stated.
Being judged, at least partly, on broader goals has its advantages. Keith complained that brand managers were constantly downgrading DDB Needham's performance scores to save a few bucks. But since criteria such as overall performance is not solely the purview of brand managers, presumably Y&R escapes being nickel-and-dimed over narrower yardsticks of success.
But Peter indicated he'd rather be judged by broader and loftier goals. "Accountability becomes the lens through which agency and client maintain proper focus on the most important business issues," he said. "Accountability is in itself a demonstration of commitment. It establishes credibility and encourages trust."
Peter maintains that this arrangement results in an environment where "the work actually becomes better. Why? Because the focus of both parties is clear. In my experience, nothing causes inferior work faster than confusion."
Peter said his agency has performance deals going with Sears, Kraft, Colgate and 10 or so smaller accounts. He added that Y&R has earned more from Sears with an incentive-based arrangement than it would have in the days of 15% commissions. And he believes that Colgate's decision to consolidate its business at the agency "was certainly due in part to our commitment to accountability."
Keith Reinhard, in our conversation, talked about the frustration of client conflicts. Peter doesn't think that performance-based compensation will relieve that situation and it might make it tougher.
"The more important we are in a client's business the more difficult it is to accept hard conflicts," Peter said. He held out some hope that conflicts bordering on "ego and silliness" could be worked out more easily as trust between client and agency grows.