Search Consultants to Agencies on Pay-for-Performance: Push Back

At Mirren Conference, Consultants Advise Agencies to Value Themselves

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Agency search consultants have a resounding message for shops facing pressure to tie their compensation to performance: It's time to push back.

"Don't work for free," said Lisa Colantuono of AAR Partners, speaking on a panel called "What's Up With Compensation & Pay for Performance?" at the Mirren New Business Conference in New York on Thursday.

"We're devaluing ourselves as an industry when you start working for free," she said.

Ms. Colantuono was referring to the recent, much-buzzed-about deal between Peet's Coffee & Tea and digital shop Razorfish, which created a compensation plan entirely dependent on Peet's bottom-line in e-commerce. That move fit into a larger conversation about finding ways to effectively tie agency compensation to the results their work achieves -- which has proved difficult so far, despite interest by many marketers and some agencies.

Ms. Colantuono emphasized the importance of agencies making sure that their worth and their work were properly recognized and compensated. She also recommended agencies keep a "blacklist" of clients that are known to be "bad grapes."

The panelists also said agencies shouldn't be tying employee compensation to client performance, or pushing fees down below what they think they're worth.

During a question-and-answer session, audience member Colle & McVoy CEO Christine Fruechte recalled an incident in which her agency successfully reached the finals of a pitch, but lost the account to a rival because her agency wouldn't lower its fees enough. Eight months later, the other shop was out of business, and the client came back, at which point Ms. Fruechte negotiated an even higher fee, she said.

All the panelists also expressed deep skepticism about how effective pay-for-performance and incentive-based agreements can be for agencies, largely because it's so hard to actually find metrics that will tell you if a shop's strategy is working. The scope of the work often changes dramatically over time, said Ann Billock, co-founder of consultancy Ark Advisors, and agencies often aren't compensated for that increased work.

Dan Osborne, senior partner at Select Resources International, said that he doesn't like the idea of pay for performance because he sees the relationship between an agency and a client like that of a married couple. "I'd rather see an agency commit," he said.

The panel's remarks echoed the results of a 4A's survey this month that found that only 39% of respondents reported having any incentive-compensation arrangements last year. Two-thirds of those agencies found that the overall impact on gross income was less than 2%. And agencies that have some pay-for-performance experience have often come away disappointed.

Ms. Billock and Meghan McDonnell of Pile & Company both said they advise clients to wait about a year until trying pay-for-performance. And often, they don't end up actually doing it because gauging performance can be so hard. "Every client is interested," Ms. McDonnell said. "But they're not being implemented."

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