Decideware

Value-Based Compensation

I wanted to comment on a great new article by Tim Williams and Ronald Baker, "New Value-Based Comp Model Needed" published recently in CMO Strategy (AdAge).

The article reports on a survey the authors conducted on behalf of the Association of National Advertisers (ANA) and the American Association of Advertising Agencies (AAAA).

What's wrong with cost?

The key premise of the article is that the 'current cost-based compensation model for advertising agencies is flawed for a simple reason: It misaligns the economic incentives of each side."

The authors recommend that clients and agencies develop meaningful indicators of the relationship that define the chief value drivers, ie those things that the customer cares about the most.

And they give the example of the airline industry which has learned to adopt measures which have 'predictive causation with profitability'. That is, the airlines have identified assessment measures which both match their customers' priorities and predict profitability - powerful stuff indeed.

The survey sought to understand and evaluate how clients and agencies define value. They make an important recommendation that instead of focussing on efficiency, CMO's should focus on effectiveness.

Influencers of Value

And beyond that, they should focus on the 'influencers of value'. Influencers are defined as the 'behaviors, skills and activities of both the agency and marketer that form the basis of value-based relationship.'

They provide examples of Influencers, including project management, collaboration and unconventional thinking.

They also describe a model, such that Influencers drive lead indicators like brand awareness and recall, which in turn determine lag indicators such as sales and profitability.

My point is that this type of model might not be entirely unfamiliar to anyone who has worked in managing large sales teams.

A common approach to assessing sales people is to construct an evaluation scorecard which consists of lag indicators such as sales, sales-to-budget, market share, etc and lead indicators, typically measures grouped under the banners of Skills and Activities.

Sound familiar?

I don't think it's unreasonable to to consider particular aspects of Skills and Activities as Influencers.

Because, for example skills like the ability to create rapport and activities like territory planning directly impact lead indicators like the number of calls on target doctors, which ultimately drive sales performance.

In our work with pharmaceutical sales managers, we've seen a growing focus on efforts to identify, measure and manage cause and effect.

In fact, we've helped clients to deploy salesforce assessment scorecards which enable them to better isolate and understand lead indicators, including many which could be described as Influencers.

And that's put our clients in a significantly better position to drive sales, rather than simply react to sales pressures.

So, I'm wondering if there are lessons that marketers can learn from their colleagues in the sales department?

And, I wonder how long it will be before many more CMOs require Influencer measures in the agency assessment tools?

Author: Richard Benyon, Decideware