CORRECTION: I don't think Coke agencies should be paid less.

 

In the latest edition of The Advertiser I was quoted as saying the following about the new Coke compensation model.

"Does this mean that Coke’s agencies are being paid less? If the answer is no, then it seems to be going to a lot of effort to get the same result."

The implication of this quote, especially when placed in a section looking at cost containment is that I think that agencies should be paid less.

I don't think that at all.

In fact what I said was:

"Does this mean that each Coke agency is being paid a significantly different amount? If the answer is no, then it seems to be going to a lot of effort to get the same result."

What I think is, that if the new Coke model is still essentially paying agencies for labor, as it it before, then is there a significant benefit to change?

I want to state for the record that I am most definitely not an advocate of their agencies being paid less.

I am definitely in favour of better compensation systems which recognise and reward agencies for value they deliver beyond their labor efforts, i.e. the new compensation system results in agencies which deliver greater value receiving a higher level of compensation.

And the flip side is, of course that agencies which don't deliver value (even if they deliver labor) will probably receive less than those delivering greater value above their labor inputs.  

The base fee of new Coke model features what I would characterize as "unit-based" compensation where Coke sets the parameters of a unit, e.g. a TVC based on historical cost data and the characteristics of this particular unit (complexity, competition etc.)

However, this part of their compensation model is essentially still a labor-based system and not one which rewards value creation.

If agencies are all paid roughly the same, i.e. the (labor based) unit cost, then what's the mechanism to reward significant value creation?

And to my mind Incentive Compensation used to provide all the profit margin, with the significant risk involved, is only part way along the curve of true Value-based Compensation.

Summary

So for the record I definitely do not want agencies to be paid less, and I do not want anyone to think that the success of the Coke compensation methodology should be based on whether they pay their agencies less.

What I do think is that the effort and risks of moving from "service-based" to "unit-based" compensation model needs to be balanced against the outcomes that it produces, one of which is a variation in the amount paid to each agency.

Author: Richard Benyon (Decideware)