UK ad industry explores alternative agency remuneration models to boost commercial creativity

Brands and agencies are exploring new types of partnerships that blend traditional time-based remuneration models with more value and risk driven incentives in a bid to spark stronger commercial creativity.

Brands and their agencies need to better aligned around commercial outcomes to deliver a win-win relationship.

While short-term targets are still important for boosting quarterly sales, there is a growing realisation amongst clients that long term business outcomes, not just campaigns, should be the frame of reference for rewarding agency projects, according to marketers and agency executives speaking at the IPA’s Performance Adaptathon in London this week.

Martin Riley, chief marketing officer at Pernod Ricard and president of the World Federation of Advertisers (WFA), said WFA members are increasingly of the opinion that they are currently stuck on performance or remuneration models that do not reflect the way they want to work with their agencies.

Riley said: “I sense that clients are moving much faster ahead in the areas of flexibility, structures and competencies than our agencies – and that worries me.”

To mend the rift between its own creative shops, Pernod Ricard recently restructured its marketing division around smaller teams to try to adopt a more entrepreneurial way of working. It is a proactive approach the brand used to develop a Kickstarter-style marketing platform for its Ballantine’s brand, in partnership with agency Work Club earlier this year.

Riley added: “As our marketers invest more on innovation and are encouraged to be more experimental there’s an opportunity for agencies to be rewarded based on their contribution to that innovation. We’re also evolving the review process for our agencies so that it’s much more geared around a long-term value relationship.”

Also speaking at the event, Caroline Johnson, partner at The Clear Partnership said agency heads need to adapt to manage more of a portfolio of different remuneration models, rather than “legacy models” – which can also make it easier for procurement teams to drive down costs.

“Agencies that are able to utilise different budgets like capital expenditure and operational expenditure are finding a profound difference in not only how they partner with clients to drive business value but also how they are rewarded.”

But David Haigh, founder and chief executive of Brand Finance, was amongst others in attendance arguing that agencies should continue to embrace time-based fees for access to top talent.

He added: “Other industries are very efficient in operating in such a way that they charge premium prices for their top people and they organise themselves well. The advertising industry is similar to how big law firms and management consultants are run, and they are habitually charging thousands a day for their top people.”

The IPA and ISBA are currently both working to create a set of agency remuneration best practice guidelines, expected to be available to members in the coming months.

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