In a strategy meant to increase accountability during the recession, three multinational giants have adopted value-based compensation models with their agencies, paying them for results attained, rather than hours worked. Procter & Gamble, Coca-Cola and, more recently, Unilever, have shifted towards performance-based compensation.
Coca-Cola has begun giving agencies in 35 markets (although not the Middle East, yet) nothing more than recouped costs if they don’t perform, but will give profit markups as high as 30 percent if the work hits top targets. Unilever has communicated to its agencies a non-negotiable up-front margin of 5 percent.
Under the new model, Coca-Cola determines the value of assignments based on a range of factors, including the work’s strategic importance, the talent involved, and whether other agencies can duplicate the work. Dr. Lance de Massi, president of the IAA UAE chapter, says agencies should be compensated according to the difference they make in brand- and business-building, and that clients need to put in place objective measures for agency evaluation.
Experts say that if such a movement has begun abroad, it is likely to reach this region before too long. “International trends always find their way to the Middle East,” Saad Abdul Aziz El Zein, CCO of Bayounah Media Co, tells the IAA. “Global businesses and accounts are likely to adapt international practices to local markets, taking into consideration any market particularities. Low margins were applied recently, and business wins are mainly based on alignments and best value deals.”
El Zein says that while such models might dent agencies’ profits, the trend will add quality, competitiveness and efficiency. “The partnership between media agencies and clients will reach new heights, and the implication of such integration will result in more creative and unconventional media planning and buying,” he says.
Other industry watchers say the shift towards value-based compensation models solidifies the need for agencies to take greater accountability for delivering value, but that it could stifle creativity. “The communications business should not be allowed to become a commoditized industry where services and agencies are traded as equals and decisions are driven purely by price,” says Hermann Behrens, CEO Middle East of The Brand Union. “This type of transactional approach will not nurture creativity and strategic thinking. It will dilute talent and ultimately we will end up with lots of cheap, worthless communication that consumers don’t want.”
Kamal Dimachkie, managing director at Leo Burnett, says the danger in such a system lies in the fact that the regional market is still underdeveloped, and does not have the maturity to handle such a model. “What facilitates the spread of such a trend in North America and the developed communication markets is the fact that there is transparency in brand management, there is maturity in the recognition of the importance and legitimacy of agencies making money, there is experience to guide the brand management and communication development process, and there is accountability on both sides,” he says. “There is qualification residing in the people who manage brands and who develop communication and there is recourse up the ladder, especially on the client side. So if any of the other dynamics fail, an agency is less of a victim for inexperience, bad judgment or abusive behavior than you get in the less developed communication markets.”
Dimachikie adds that if the value-based compensation model is applied regionally with no regard to these values, the effect can be “disastrous”. “However, he says, if the foundation is laid – and this requires massive investment and years of knowledge building, best practice application, qualification and maturity – then it will help move the industry to a level of meritocracy that we have not yet seen.”
