Close-Up: Does payment by results work?

As COI becomes the latest big advertiser to adopt PBR, John Tylee asks if it can ever be successful.

The relationship between the marketing communications industry and payment by results has always been more like a long-running affair than a full-blown marriage.

The two have certainly grown closer since the industry broke up with the commission system in the late 90s, even though PBR can hardly be said to have supplanted it as its one true love.

It's not that PBR hasn't become increasingly influential. Indeed, more than half the contracts that ISBA members have with their agencies include a PBR element.

Coca-Cola and Beiersdorf, Nivea's brand owner, which last week appointed DraftFCB as the global lead agency on its $700 million account, have both shifted their focus to performance-based compensation.

Now it looks as though COI is set to join them after recommending to ministers that agency remuneration for government campaigns should be performance related.

But so far, it's fair to say that PBR has not proved to be the payment panacea that so many hoped it would. One reason for this is that PBR has never fully overcome agency suspicions about it. "When client procurement people talk about PBR, what they really mean is that they want a discount," one industry leader claims.

Chris Hirst, the Grey London chief executive, says: "PBR hasn't caught on because it needs a lot of effort to make it work properly."

David Wethey, the chairman of Agency Assessments International, agrees the system has an ongoing image problem. "Although PBR is establishing itself, it is neither universally practised nor universally loved," he acknowledges.

To make matters worse, industry trade bodies are reporting complaints from member agencies that meet a client's performance targets only to be told that there's no money left in the budget to pay the agreed bonus. "That's not just wrong, it's fraudulent," a senior adland figure protests.

Some see COI's move as fraught with potential problems. How can PBR be applied when so many government campaigns are about influencing public behaviour over a long period? How would PBR work for agencies that produce fast-turnaround tactical campaigns? And what happens when more than one agency is involved? How is the bonus to be fairly divided between the agency that came up with the core idea and the other specialist shops that evolved it?

Nevertheless, there are those who believe the brickbats being slung at PBR are because the system has yet to be fully refined.

"To base agencies' pay on how successful your business is would be ludicrous," Jeff Dodds, Honda UK's former marketing chief who is now the director of internal communication and employee engagement at Virgin Media, says. "I'm a fan of PBR but it has to be based on the right criteria."

At Santander, 40 per cent of the remuneration the bank pays to its agencies is performance related. "We base it on such things as media buying performance, account servicing, quality of planning and efficient financial management," Keith Moor, the director of brand communication, explains. "It represents a larger proportion of fees to our media agencies, where these elements are more measurable, than it does to our creative agencies."

Bob Wootton, ISBA's director of media and advertising, adds: "The PBR system can only get better as more of our member companies and their agencies use it and learn from it."

Client - Richard Hudson, UK marketing director, BMW

"Payment by results has been an element of our contracts with all of our marketing suppliers for about ten years. But it can only be part of an equitable remuneration arrangement based on the scope of the work that our agencies are carrying out.

"Some people use PBR to reduce their risk and try to ensure they pay only for advertising that works. But we'd never base our payments on the strength of the BMW brand because that can be influenced by any number of things.

"We'll certainly be sticking with PBR. All we'll ever change is the level of results we want our agencies to achieve."

Agency head - Chris Hirst, chief executive, Grey London

"I wouldn't say payment by results can't work. Our Procter & Gamble client uses it to remunerate its agencies and has always done so in a thorough, fair and transparent manner.

"Where PBR is wrong is when it's introduced as an afterthought at the end of a fee negotiation. What's more, the harder that PBR is to measure, the more difficult it is to make it work successfully.

"Some clients factor in a PBR element into their contracts. But there are still a lot that don't. Somebody still has to come up with an effective and fair alternative to the commission system."

Intermediary - David Wethey, chairman, Agency Assessments International

"Payment by results isn't universally applied but I see nothing wrong with it as long as it's seen to be fair. And it's true there are doubters who say that PBR is too often used because the agency fee is inadequate.

"PBR is a tricky issue. However, if agencies and clients are serious about long-term relationships, PBR could have an important part to play in rewarding agencies for their long-term brand guardianship.

"PBR will survive and it will get better but it needs to be related to long-term objectives. That's hard today when a year seems like a long time."

Industry body - Bob Wootton, director of media and advertising, ISBA

"Of course, payment by results can only work if two consenting parties agree to it. But it is becoming more widespread. Increasing numbers of our member companies have an element of PBR in their agency contracts. Some do it well and some don't. But everybody is learning from it and adapting to it.

"Whether or not PBR can be applied to government messages is a difficult question to answer. It's not like promoting Cadbury's Dairy Milk.

"However, PBR is already proving a force for good. And it will get better as data collection and matrices improve."

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