Is There a Pot of Gold at the End of the Rainbow?

Jonathan M. Lace


When a company of the stature of Procter & Gamble announces the intention to change its method of agency remuneration on 200-plus brands from a commission-based structure to incentive compensation, the marketing world notices (Financial Times, 1999; Marketing, 1999). The list of advertisers that have embraced incentive compensation is prestigious General Motors, Amex, Colgate Palmolive, Kmart, Levi Strauss, Wrigley, Kellogg and Unilever to cite but a handful of the biggest (Advertising Age, 1997a,b,c,d; Adweek, 1998). While the rationale for this change is clear (and will be reviewed below), how a pbr scheme should best be structured for success is not. Perhaps it should be left to the individual ingenuity of agency and client to design a scheme that is reflective of their relationship, the aims of the advertising and the situational factors (e.g. industry sector/product type). Or perhaps there is both an accumulated wisdom and a role for further research to identify what makes for enhanced success. Advice based on evidence and experience would be beneficial even if it were not necessarily adopted as reassurance, or as a catalyst for new ingenuity. The aim of this paper is therefore to review a little of the best practice advice on payment-by-results, and to describe planned research activity upon which fuller advice could be offered to advertising practitioners. The paper therefore necessarily considers incentive compensation within the context of agency remuneration as a whole. It presents top-line research findings on the contemporary use of pbr, reviews three of the principal issues in scheme design and the associated wisdom on best practice. It also draws upon key learning from a literature review on performance pay. A research agenda is proposed to provide guidance on these design issues against which there is incomplete advice. This agenda is constrained by significant practical considerations in data collection, not least requirements of confidentiality. In conclusion it summarises the expected contribution of the proposed research.