Editorial: O&M case highlights the need for new fee system

The fraud perpetrated on the US government by two former executives of Ogilvy & Mather in New York is inexcusable but explainable. Indeed, given that the pressures on agency margins show no signs of lifting, it is a surprise, and a relief, that no other transgressions have come to light.

Of course, there can be no justification for the overbilling that happened at O&M. It was a criminal act that not only led to those who sanctioned it facing possible jail sentences but tarnishes the reputation of the industry as a whole. That said, it's equally true that the incident highlighted, in the most dramatic way, the desperation that drives an agency manager to resort to such measures and the need for clients and agencies to agree what constitutes a fair rate for the job.

The O&M affair, in which the executives dishonestly attempted to make up a projected $3 million shortfall on the Office of National Drug Control Policy account, is an extreme example of what can happen when an agency is prepared to take business at any price. In the UK, ISBA is working with the IPA and the Chartered Institute of Purchasing & Supply to come up with a remuneration framework that rewards agencies properly while remaining compatible with advertisers' best interests.

Their task is unenviable. Since the waning of the commission system, a range of remuneration models have been tried but none have proved entirely satisfactory. The problem is simple. How does a client adequately compensate an agency for a cut-through idea that might take minutes or months to produce? To put it another way, how can a piece of creative magic be acknowledged by client procurement police who know the price of everything and the value of nothing? A solution is made more difficult by an over-supplied market in which agencies have taken on uneconomic business, giving clients no incentive to reward excellence.

So what are the options? Procter & Gamble links agency rewards to brand sales. But that may give agencies problems if the campaign has a long-term pay-off. Fees could be based on agency hours but such a system may succeed only in rewarding inefficiency rather than effectiveness.

What's obvious is that, in the absence of an ideal solution, a clear set of guidelines need to be established. Nobody wants a repeat of what happened in New York.

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