Saatchi boss flies in to push fee shake-up

Kevin Roberts, the globetrotting, hyper-active worldwide chief executive of Saatchi & Saatchi jets into London this week to deliver what is expected to be an improved set of financial results for the company.

Since Roberts became boss of the agency network two years ago, following the low-point of the forced departure of brothers Maurice and Charles, Saatchi’s fortunes have greatly improved. It is the world’s tenth largest and has won more worldwide business from Procter & Gamble, including Oil of Ulay and Head & Shoulders in the US, Sunny Delight in the UK, and Safeguard and Physique in the US and Latin America. It has also netted the Toyota Yaris account across Europe and new work in Poland and France. Together the two clients make up one third of the network’s business. City forecasts suggest pre-tax profits will jump from 23.5m in 1997 to 29m for 1998.

If Roberts has his way, the City will soon have to re-examine how it makes these forecasts. He is pushing his clients to pay the agency by results, rather than through commission on billings or an agreed fee. Later this year, P&G will start testing new methods of remunerating its agencies, trying out a mixture of fees or commissions with a performance-related element on seven of its brands. It refuses to divulge which brands, but two that Saatchi works on are understood to be among them.

Roberts says: “The tests will be implemented later in 1999, and we need a more accountable system. We are actively speaking to all our clients about incorporating a performance element, looking at market share, value share or sales volume. A performance-related element is the only way to ensure media neutrality.”

The aim of the P&G tests will be to see how incentives can be created favouring alternatives to television campaigns. Roberts says he will suggest a performance-based scheme to other clients, adding that there should be no cap on the amount an agency earns for top-performing brands. It seems a high-risk strategy, as the agency’s profits will depend more on outside factors such as distribution and sales than on how much the client spends.

Roberts’ plan, if it catches on, could thrust the whole advertising industry into a period of uncertainty, leading to a situation where more money can be made from a small-spending, but successful, client than from a high-spending brand that performs poorly.

Explaining Saatchi’s improved performance to sober City analysts will seem a doddle after the political storm that engulfed him in his adopted home of New Zealand (MW March 4).

Late last August, Roberts dined with New Zealand’s Prime Minister Jenny Shipley. What the two discussed has become the subject of a heated debate in New Zealand, as the opposition Alliance and Labour parties have tried to portray a conflict of interest between the two.

Saatchi had just won the New Zealand tourism account (MW 16 July 1998), which was already mired in controversy after the departure of four of its top executives. Shipley’s critics say this dinner was an attempt by Roberts to put pressure on the PM to bring about a rise in the budget – a few months later, the budget was duly raised by NZ$12.5m (4.3m) on top of the existing NZ$30m (10.2m). But there is little evidence to link this increase to the dinner-table conversation. The affair has been dubbed “Dinnergate” and the New Zealand media have talked of little else over the past three weeks.

It was after another dinner date two years ago that Roberts became international boss of Saatchi. He met former Saatchi chief Ed Wax over dinner while visiting New York to buy a loft apartment in the city. Roberts was working for New Zealand brewer Lion Nathan and was looking for a way out of the business which he complained had become obsessed with cost-cutting and short-term profits. Wax complained that he had had enough of spending all his time on planes and was looking for a replacement.

Some insiders say Wax asked P&G for its approval in hiring Roberts. “When Kevin was chosen as worldwide chief executive, Saatchi volunteered his name to P&G for approval. If it had objected violently he would not have got the job. And it has worked for us. Since 1997 we have had 100m of extra P&G business and this is down to Kevin,” says one insider.

There was little doubt P&G would warm to Roberts – he was one of its own, having worked for the company for seven years in the Middle East and Africa. But Roberts denies P&G can hire or fire a Saatchi boss. Either way, it reflects the power wielded by the world’s biggest advertiser, and the fact that Roberts is so close to the client has important implications for the way Saatchi, and many other agencies, do business.

Payment by result may be fine for some of Saatchi’s brands – the launch of Sunny Delight across Europe has been deemed a success. But launching a product is very different to increasing sales for a well-established brand such as Tampax. Roberts’ close links with P&G – for whom he is Saatchi’s worldwide account director – has helped bring in new business from the world’s biggest advertiser, but championing payment by results – in line with current thinking at P&G – requires a strong belief in the ability of the agency to deliver.

The coming year will test Roberts’ faith in performance pay as the results of the P&G tests become clear. If the results are positive, Roberts will be in a stronger position to persuade other clients to follow suit.

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