Views on Agency Compensation

One of the most hotly-debated issues in public relations has always been compensation; by that I mean what agencies should get paid, not what they should pay their people. This is especially now that we're in an era of push-button publishing and "how to" books purporting to make everyone instant experts in virtually any subject. While the debates rage on, I'd like to suggest they mostly miss the point.

For some time, there have been agencies and consultants touting a pay-for-performance model in public relations. In most cases, this simply means that agencies get paid based on how well they perform for the client. While that sentence may have been simple enough to parse, such a change in strategy is anything but simple and, in my opinion, not as great as it may sound.

In most cases, pay-for-performance models have scales that award the agency a fee based on the circulation of a publication or some similar metric. For the most part, such model changes have been suggested mostly for public relations, since there's always been a perception that it's in the best interest of a business to pay based on media coverage. However, one ad agency chief recently raised some eyebrows for suggesting a new approach that would extend to ad agencies.

In an AdWeek story, Andy Fletcher, chief of the Atlanta ad consulting company Fletcher Martin suggests one of the problems with the conventional agency compensation model is that agencies are rewarded the same for success as failure. Instead, he proposes a two-tier model: the first part of that model would involve clients paying a set fee for a program strategy; the second portion would be based on the results the client receives as a result of the strategy itself. Fletcher proposes that agencies should be willing to risk all their execution-based compensation because, if the client wins big, so does the agency. Again, Fletcher's not specifically mentioning PR in his piece, although such a methodology could theoretically apply there as well.

Fletcher's idea is certainly better than the pay-for-play approach that's traditionally been espoused in PR. The key question, however, would be whether such a model could really be effectively adopted by PR agencies. For example, there are certain scenarios where no agency could succeed, regardless of the quality of the strategy. These could include a flawed product design, poor program implementation, etc. While the agency would still receive a program fee, one would assume that their overall upside would be tilted toward execution rewards. In this case, those rewards would likely be muted by the aforementioned issues.

As someone who's spent a lot of time working with attorneys and other professional service providers, it's always struck me as odd that some PR pros devalue their services in an effort to compete. For example, you'd never see well-known corporate attorneys adopting a "winner take all" strategy when it comes to a piece of complex litigation; and they certainly wouldn't call a business model like that revolutionary.

For better or worse, however, PR has always seemed to do a poorer job of positioning itself than its clients. So if we're going to talk about alternatives, in my opinion, a model based along Fletcher's thinking is at least a step in the right direction.