A Price on Creative

More and more work is being squeezed out of creative agencies for less and less money.True,there is a recession and clients are pinching pennies, but the latest innovation in client/agency remuneration — performance-based pay — began before the current economic malaise. It is one of the many unforeseen changes set in motion when ‘media’ abandoned the mother
agency, in the process destroying the gold standard 15 per cent commission system and ushering in an era of creative
and production fees and, now, the pay-for-results concept.

Paying for results
The practice is already widespread, according to Rahul Welde, vice-president, media, at Unilever Asia,Africa, Middle East and Turkey.“Industry momentum is toward performancebased pay,and in the past three or four years it has become embedded in the way that business gets done,” says Welde. “One model links pay purely to brand sales — whether a target has been met. 
Another model gauges agency performance as well as brand performance. I think agencies are more comfortable with the combination rather than pure brand performance.”

Sport shoe and apparel brand Puma, for example, uses the combined method to pay the outside agencies that together work alongside its 40-man in-house creative agency. “They get a base payment, then a percentage based on performance,” says Christoph Peter-Isenbuerger, head of marketing for Puma in Asia-Pacific. “It is both qualitative and quantitative.Sixty per cent is base — a qualitative measure of whether we think the agency did good work. Forty per cent is quantitative — how the campaign performs in the sellthrough of our owner-operated stores and wholesalers.”

Perhaps Puma’s mastery of retail allows clinical accuracy, but is this generally possible? Clearly, the devil is in the metric — especially if the goal is to reward creative performance in its old school sense of building long-term brand equity.

“If the purpose of the ad is to create awareness and not sales, how do you measure performance?” asks Guanhin Tay, regional executive creative director and global director for Lux at JWT.“Determining what is good creative — and what isn’t — is quite subjective. From the creative point of view, what makes a piece of work good is the emotion. It makes you smile, it makes you sad,or it gives you something to think about.So a simple measurement might be: do people enjoy the work? We cannot force people to buy a product,but we can do our best to make sure people remember the product.”

Creative sales
Ultimately, though, the job of advertising is to sell and no-one denies that. But putting creatives in charge of sales seems more akin to desperation than inspiration. Simon Handford, executive creative director and managing director, M&C Saatchi Hong Kong, offers a telling anecdote: “A client approached a creative director and said, ‘I’ll give you a huge personal bonus if
we sell a certain amount of our product. The work you create to generate those sales is entirely up to you.’ They put everything — brand and message — in the hands of the creative director. It was an interesting dynamic. I watched this CD go from ‘Oh wow! I
can do an award winning piece of work!’ to ‘How am I going to reach that number!’ It eroded the creative approach.”

So will the linking of creative agency pay to sales performance kill the Big Idea? Perhaps. For now, though, agencies are soldiering onward, telling anyone willing to listen that the trick is detailing the performance criteria up front. Herein lies the
tragic flaw in the agency/client marketplace. The information is asymmetric. 

The ad agency world is brutally transparent.When clients shop for a high-powered creative team, they compare agency credentials, turning to the awards page and counting the golds at Cannes, the Clios, Spikes and more.Awards are an apt index for creative talent.

The client side, in contrast, is a land of unknowns. If paid based on sales, the first thing any agency must consider is whether the client is challenging entrenched local brands with low prices and fantastic distribution. Moreover, does the client intend to
act on the agency’s advice and will it open the books and divulge sales? “If the partnership or trust is not that strong, then it won’t work,” says Tay,“Even if we give the best creative and work the hardest.” 

Hitting client targets 
Despite the glaring negatives, some creative agency heads say performance- based-pay is worth a go. David Mayo, president of Ogilvy & Mather Asia-Pacific, says the concept is not really new. “Companies are always looking for two things in parallel — one is to incentivise people and another is to manage costs,” he says. “Ogilvy has done lots of pay-by-results work for our larger clients.” 

Mayo fondly recalls a performancebased deal when he was at the helm of boutique agency,Red Card. “We were given the advertising account for low-cost carrier Jet Star.We knew that it needed X per cent of the seats full Y per cent of the time on Z
per cent of the flights. Based on that, we knew when they reached target Loads,and when we would get paid.

Mayo says the system led to extraordinary work.“The client let us do very creative things, because they knew that we had a stake in the outcome. It was very real.We would sit around the computer on Monday morning and work out how many seats the’'d sold
over the weekend.From that we knew what we would get paid.”