Whatever your agency compensation model, there are some [essential] guiding principles that should underpin every remuneration agreement. Ignoring them, or cutting corners in your approach to defining your remuneration contract can ultimately give way to frustration, disagreement and / or dissatisfaction down the road.
And whether you’re defining a new agency remuneration package from scratch, or redefining an incumbent remuneration contract, ensure you’re operating with the following principles in mind:
More than anything you want to construct and negotiate your agency remuneration agreements from a position of trust. If you don’t fundamentally trust your agency of choice, you should be asking deeper questions about why you chose them in the first place. Trust you’ve made the right choice and ensure that trust is reflected in your approach and discussions – you’ll get further faster.
So we’re all clear – fair doesn’t mean “lowest price”. Approaching agency remuneration solely from the perspective of getting the lowest price is a sure way to getting your agency relationship off on the wrong foot. “Fair” is about paying a reasonable market price for the services you’ve contracted, taking into account your scope of work and allowing the agency to make a fair and reasonable profit for the work they do.
Any agency remuneration agreement should be straightforward. Whether you’re working on a fixed or variable fee structure, commission, time and materials, and / or a pay by results model, your goal should be to create a remuneration model that’s straightforward and easy to understand. Over complicating an agreement leaves room for misunderstanding and misinterpretation and potentially lengthy meetings to clarify what you’d originally intended.
Easy to manage
In just the same way as your remuneration agreement needs to be straightforward, it also needs to be easy to implement, monitor and manage. Chances are, if it’s going to take time to manage, it’s probably not as straightforward as it could be and you should consider simplifying.
Any agency agreement needs to be flexible enough to accommodate changes without having to go back to the drawing board every time you want to adjust something. One of the easiest ways to do this is to split out fundamental remuneration terms, pay by results terms and other business terms. Chances are that while you may want to review one of these later – you likely won’t want to review them all.
While you want to build in a measure of flexibility, you also want to take a long-term view when creating an agency remuneration agreement, for the simple reason you don’t want to re-architect a new agreement every twelve months or so. A long-term view also underscores the trust and confidence you’re placing in your agency partner.
Clear success metrics
When contemplating or including a pay by results model within your remuneration agreement, it’s critically important all parties agree on the success metrics that will trigger – or withhold – any remuneration subject to results. Sounds obvious, but if the definition of success or specific, measurable results aren’t clearly defined, the PBR model isn’t worth the paper it’s written on.
This is particularly important when you have a pay by results component to your remuneration agreement and when you have multiple agencies on your roster. Clearly defining boundaries and responsibilities ensures clarity of purpose and task and keeps your agencies focused, and remuneration in-line with everyone’s expectations.
While trust can take you so far, this is one instance where your agreement needs to be confirmed in writing. If nothing else, you want to ensure your handshake can withstand a changeover in resources and leadership on both sides should it happen (and it does!)
Finally, you should ensure you have the most senior signatures on whatever agreement you finally paper. Completing a negotiation without the blessing of respective CFOs, EVPs or CEOs can potentially undo everything you’ve spent time negotiating. Get the boss to sign – or at least initial – your final agreement.
In our view, these are fundamental principles in every agency negotiation and remuneration agreement. If you’re questioning or struggling with any of the concepts outlined here, you should probably ask whether you’re properly matched with the agency or agencies you’ve chosen. In any event, your best bet is to seek objective, third party help to ensure your negotiation and remuneration solutions are the best they can be.
Stephan Argent is Founder and Principal at Listenmore Inc offering confidential advisory to marketers looking for truly independent insight and advice they can’t find anywhere else. Read more like this on our blog Marketing Unscrewed / follow me @StephanArgent