Value-Based Compensation - Things to Check for

I was very interested to read Coca-Cola's plan to implement value-based compensation agreements with its agency partners.

On the one hand, there's a lot of merit to paying agencies relative to the success of their campaigns. Most other industries are compensated on the efficacy and efficiency of their work (think construction projects), and the fee or commission based agreements can sometimes (especially with the wrong kind of agency leadership) lead to a false sense of contentment, security and a lack of motivation to do the best work possible.

From an agency perspective, here's some things to look for and analyze when asked by the client to engage in a value-based agreement

•Trust. Be convinced of your client's trust in your agency and its abilities. The reason is that, just as some ideas will succeed, others won't. In a retainer system, failures don't have the same kind of financial impact. While sometimes inefficient, a fixed fee can also give you comfort in taking risks. Beyond reduced compensation, make sure you aren't penalized in your client's mind for taking educated, mutually agreed-upon risks. The last thing you want for your agency is to be walking on egg shells, trying to play it safe to make sure you meet minimal profit goals. That doesn't do anything except ensure that another agency will take a bigger, educated risk which will pay big dividends for your client, and, ultimately, them. If your client trusts your abilities, you'll jump right back into the mix with the same approach you had before.

•Understand the variables. Value-based compensation agreements can be very complicated when discussing what the agency can control vs. what the client can control. For example, if your agency delivers a campaign for a shoe store designed to increase floor traffic, only to have the store's poor customer service levels drive sales down, you shouldn't be held responsible. Even then, what happens to your compensation? The point is to make sure that key performance indicators on the client's part are at mutually agreed upon levels. Once you have those nailed down, you are left to your work being judged on its own merits.

As far as I'm concerned, there's no better way for your agency's work to be judged.