After a 9 month joint exercise, ISBA (the Incorporated Society of British Advertisers representing the client side) and IPA (the Institute of Practitioners in Advertising representing the agency side) have published Guidance Notes on payment by results.
Topic: Agency Remuneration
When: September 2000
After a 9 month joint exercise, ISBA (the Incorporated Society of British Advertisers representing the client side) and IPA (the Institute of Practitioners in Advertising representing the agency side) have published Guidance Notes on payment by results. The objective was to help agencies and clients embrace PBR as a “win win” way of enhancing agency’s remuneration and incentivising them to provide clients with ever more effective advertising. The notes were published against a backdrop of worldwide data suggesting that 65% of all ad agencies were already remunerated at least in part on a results-based basis, while this proportion had already reached a third in the UK. The real challenge in these cases is to agree an objective criteria against which performance can be measured and remuneration quantified accordingly. Whatever is agreed of course should be set out clearly in the agency/client contract or in an appendix to it, but what sort of measures should be considered? Examples mentioned in the Guidance Notes include brand awareness in the market place, (verifiable through tracking studies), brand equity, in a retail context improvements in same – store sales or a specific percentage increase in product sales or revenue, even though, as is generally known, there are so many more factors at work than simply the advertising in all of these situations. How to sift out these factors? The Guidance Notes offer no conclusive answer but simply urge that care is taken in ensuring that selection of the criteria and the targets linked to them are appropriate and are not going to be potentially problematic and costly.
Another criterion is agency evaluation, looking at the agency’s performance on task, service and relationship competencies. These are inevitably more subjective, but the ISBA and the IPA can offer advice if required on seeking to identify benchmarks against which agency performance can be measured.
Why this matters:
Clearly, as commission is left behind, and monthly fee-based remuneration takes its place, there is a desire on the part of the clients and agencies to find some other variable measure which is designed to combat complacency on the part of the agency and encourage client and agency to focus on the objectives the advertising is seeking to achieve. As ever the “Holy Grail” is the achievement of objectively measurable criteria, while of course at the end of the day, if there are arguments over precisely how this slice of the remuneration should be calculated then it is probably an indication that the relationship is on the rocks anyway.