Tom Denford
By Tom Denford
Dec 16, 2011 3:33:46 PM

So, What's Wrong With A Bonus Culture In Agencies?

 

How incentive is the lifeblood of success, especially in the marketing business.

There has been a jolly great hoo-har over the bonuses paid to bankers this year. Whatever we think about bankers, I think making bonuses the felon is wrong.

Anything that requires performance, or indeed anything that requires out-performing the market, should be incentivized by a bonus of some form.

Bonuses themselves are not wrong, but perhaps they have been misused by some companies to reward short term gain when really they are a long-term incentive. We work in an industry which relies on out-performance, everything is geared to be “more efficient, more effective, better ROI, deliver incremental improvements etc”

Whether you are a marketing client or an agency we are all working to the same principle of marketing success, which is that your brand’s investments need to be ‘disproportionately more effective than anyone else in the category’.

In lay terms, make every dollar work harder than your competitor and you’ll come out on top, all other things being equal. If you can make your communications more effective than the competition, you’ll spend significantly less on it over time allowing you to invest more in service, product or pricing (which build a reputation in a different, arguably more sustainable way).

I believe that should be the yardstick by which we define a marketing success. You can of course define ‘effective’ however you want but there’s no escaping the reality that effective marketing should usually be adjudged upon the growth of the company doing that investing (whether that growth be for short term, immediate sales uplift for longer term, brand value).

Every brand should aspire to spend less on branding / media / advertising (whatever you want to call it these days). That’s not procurement talk, that’s a truth. By so doing, a business can gain an advantage against their competitor who may be wasting their money against less effective means.

The best piece of business advice anyone ever told me was “to succeed you don’t need to be brilliant, you just need to be better than the next guy”. In order to achieve this you need to consider how to incentivize your marketing service suppliers to help you “be better than the next guy”. For companies (like agencies) that are managing your money with a responsibility to add value to it (making it worth more) then a bonus culture is entirely appropriate. I would argue it is critical to gain this competitive advantage.

Can we avoid bonuses? Nope. Because the alternative is to just pay a regular income irrespective of performance and that really makes no sense for a company that has a long-term ambition for growth.

The reason regular people earn a monthly salary is because we need them to turn up in the short term, regularly every month. The reason we give some people the prospect of bonuses is to incentivise them to deliver performance over the longer term, not just turn up. This makes complete sense.

Unfortunately it has become easy and fashionable to bash bonuses as a principle, especially as people saw bankers who had destroyed their companies being handsomely rewarded for failure. Of course this is wrong. The critical distinction is that bonuses should be directly linked to out-performance of the market over time, so for a media agency that means making media investment work harder than anyone else to deliver the equivalent core KPIs of a client. That takes hard work and some skilled thinking, but should be handsomely rewarded if successful.

Many agency contracts include performance bonuses, I think these should be ‘out-performance’ bonuses, call it the “better than the next guy” clause and put a big number beside it. Because if everyone is performing the same then there’s no advantage to investing in marketing and we’ll soon find our client companies find something more productive to do with that money than marketing.

This ID COMMS article originally published on M&M Global