Performance Test

Many companies are warming to the idea of performance-based fees, but some are vigorously opposed to them, pointing out how difficult it is to measure success accurately.

The idea of being paid on commission has such a long history in sales that it is taken for granted almost everywhere. Yet if you propose it in other branches of marketing, most people respond as if you have just suggested they might like some custard with their bacon sandwich. Why are performance-based fees so rare in conferences and exhibitions and how would events organisers react to being paid according to the success of meetings?

“The incentive travel business is based on the idea of rewarding people for doing good work, so why not give us an incentive for doing our job well?” says Shaun Casey, director of event management at The Travel Organisation. He has discussed the notion with various clients but has yet to strike a deal involving performance-based fees. This is partly because some clients are nervous that fees may escalate, but equally because he himself is worried that the success of an event may be judged on circumstances outside his control. “What if we took people to the South of France and it rained the whole time?” he asks. “People might describe the event as a disaster, but we couldn’t be held responsible for that.”

But in some cases, he adds, it would be easier to attach a success element to the payment: “If we can show that we have got better prices through our professional procurement department, then it seems right that we should be rewarded at a higher level. Or if we have sold an event better – such as in the case of events with fee-paying delegates. You could have a flat management fee and then add a certain percentage for extra bookings over a set number.”

David O’Beirne, managing director of exhibition organiser and sales house The Sales Agency, agrees that it is relatively easy to integrate a performance element into the selling side. The Sales Agency tends to agree a base fee with a client and a percentage of commission on top if sales are higher or costs are controlled. He says: “That principle could apply to conferences and exhibitions, if you get a show launched or get it to a certain size.”

But how easy is it to measure performance in other areas of the industry? Would a performance element work for organisers of different sorts of events?

Crown Communications managing director Nick Lamb is one of the most ardent advocates of performance-based fees. He believes the element of dual risk-taking helps to focus clients’ minds on what they hope to achieve and how they will measure it. It also fosters a sense of partnership between the client and the event organiser.

“There are too many operators out there who pay lip-service to the idea but haven’t got the balls to push it through. They don’t understand it or they are scared by it.” he says. “People have to have courage and vision. Both are particularly thin on the ground in our industry. Anybody who doesn’t think it’s the future is still in the Dark Ages.”

Aversion to variable fees

He admits that some sectors are especially averse to variable fees. “It rarely works in government projects, because the ability to monitor and spend public funds is limited, and there are other, similarly old-fashioned sectors that don’t like the final bill to be a surprise.”

Lamb welcomes the advent of dynamic industries, such as online providers and Internet banks, because they are more likely to embrace new ideas. “They are rewriting the rule books and practices,” says Lamb. “There is a ground-swell of feeling about identifying new ways of working.”

He also believes that event evaluation is growing more sophisticated, allowing fees to be tied to measurable results and making the organisers more accountable than ever before: “Rather than just having a form to fill in at the end of a session, or contacting people by e-mail shortly afterwards, we can contact people on the move. Soon, access to the Internet will be mobile and handheld, through Palm Pilots, mobile phones and other new communication technologies, which will allow us to collect data more precisely and more quickly and to carry on monitoring after the event.”

The Eventworks director Jeremy Starling is another fan of performance-based fees, believing “all service companies should use them”.

Teamwork

The Eventworks organises what it calls “active conferencing”, shunning spectacular light shows, plenary sessions and senior staff spewing out the company line in darkened halls. Instead, it works on the principle that lecturing people breeds boredom, resentment and short-term memory loss, while involvement breeds understanding and commitment, delegates divide into small teams and thrash out problems themselves.

ICL used The Eventworks to run an active conference for its central European project management staff. Competing teams had to think up ways to work more effectively, then each group was asked to invest in the team whose ideas it thought would be most effective. This way, ideas could be shared and the best ones promoted. The event was a big success, says Gill Weiser, the marketing and communications manager at ICL who commissioned the event.

“We took a chance on The Eventworks and its more interactive way of working,” says Weiser. “The threshold of trust took a while but the company offered a performance-related payment structure to get our confidence. We liked that idea. In fact, I wish I could get all the consultancies I work with to use that sort of payment – PR companies, for example. It encourages them to put everything they have behind the work they are doing for us.”

If pay is to be based on performance, an event needs to have clear criteria by which to measure its success. Weiser believes the necessity to thrash out clear objectives is part of what focuses minds and helps to ensure that such events work.

The Eventworks draws up what it calls Smart (specific, measurable, achievable, relevant and time-based) objectives with its clients and uses these to dictate how much it will be paid.

“Success can be measured by putting numbers to what we are going to do,” explains Starling, “along the lines of ‘when they leave the room, 90 per cent of the delegates will rate their understanding of the mission and its benefits at 70 per cent or higher’ or ’80 per cent will rate the conference at seven out of ten or higher when asked if it has been a good use of their time’. If you ask questions before and after the event, then any change can be attributed to the event.”

He admits that post-event euphoria can influence the answers, but suggests follow-up research in the following weeks or months will establish how long-term any shift in perception or motivation turns out to be. “We did a project for American Express where the scores stayed high when we measured three and six months later,” says Starling, “although after a time other things could come into play and affect the results, such as other information they have read.”

Starling admits there are circumstances where the process can be hard to implement. For example, questions become awkward to ask when a company has covert objectives. Asking delegates at the beginning of a meeting “Where would you rate the credibility of the chief executive on a scale of one to ten?” might give away too many clues about the purpose of the conference. Delegates anxious to avoid finding a P45 on their desk when they return to the office might also be reluctant to reply honestly – even when assured that responses are to be anonymous.

Andrew Hillary, managing director of Clearwater Communications, confirms that it is hard to get clear or honest answers in some circumstances. “If you have a conference designed to help everyone in the organisation to understand the brand and push it along in the same direction, then a lot of what you are trying to achieve is based on ’emotional collateral’. It’s hard enough to measure changes in attitude accurately; it’s even harder to measure changes in emotional response, because people don’t put down what they feel, but what they think they ought to feel.”

Performance-based problems

In these circumstances, he reckons that it is very hard to judge the performance of the conference company accurately enough to base payment on it, so Clearwater charges its clients on the basis of straightforward fees. Hillary also suggests that the fact that many events are one-offs involving short-term relationships between client and supplier militates against building an understanding between the two companies. For this reason too, he is wary of performance-based fees.

However, Starling reckons that offering a performance element in the fee structure should help first-time clients to have confidence in the organiser. In fact, he says: “Clients have lower expectations than us and find it hard to believe that our way of running conferences can make events 300 per cent more effective. When we have worked with a client for several years, they know it’s true, and their expectations are raised, which makes it harder for us to earn our fee.”

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