'Time and Money': What DDB's Keith Reinhard Has Learned About How Agencies Are Paid

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Reinhard: Results-based
Reinhard: Results-based

DDB introduced a compensation model in 1990 called "Total Creativity. Guaranteed Results," which Keith Reinhard, worldwide chairman emeritus of the Omnicom agency, says "got a lot of good press but few takers."

Reinhard says Ad Age's recent "How Much Are Agencies' Ideas Worth?" feature made him think about the agency's model and what the shop has learned over the years, including the fact that "it was wrong to use the word guarantee."

Continue below to read Reinhard's reflections on agency compensation agreements.

1) A "results-based" agreement is better than a "performance-based" agreement because the latter allows the client to make subjective judgements at the end of the year about aspects of agency performance that have nothing to do with results. "They took two days to answer my phone call" could drag an agency evaluation down from a score of five to a score of four and allow the client to pay a lesser bonus. Whereas an agreed upon result that's achieved, is hard to argue.

2) CMOs are sometimes reluctant to share all the details about their business, which an agency needs in order to promise and agree to a specific result. Withholding knowledge is a classic power gambit and some clients love to exercise that power to keep the agency "off balance." I never understood why that's good for either party.

3) Clients and agencies may be unwilling or unable to be specific about the desired result. Some clients would rather bang their fists on a table and say, "We've got to turn this brand around!" As we know, that could mean a number of different key performance indicators, such as:

  • Acquiring new users (how many?)
  • Convincing current users to buy more (how much?)
  • Increasing distribution (how much and in what channels?)
  • Increasing shelf space (how much and in what outlets?)
  • Increasing value perception (in order to increase price)

4) To accomplish any of the above requires both time and money. And the more you have of one, the less you need of the other. Getting X number of new users in the next two weeks will probably cost a lot more than getting the same number over the next two years. Yet budgeting continues to be done independent of goal-setting.

5) Finally, CMOs claim they don't know how to budget for an agreement, the cost of which could not be accurately predicted. My own answer was: Set your budget on the assumption of success. If we don't deliver the results, then you've got extra money at the end of the year, so you'll look good either way.

I hope I live long enough to see what McCann Worldgroup chairman and CEO Harris Diamond described as a "compensation-beyond-fee arrangement base on the success of your idea." The industry desperately needs it.

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