Why performance based payments need to be an incentive not a disincentive

This post is by Darren Woolley, Founder of TrinityP3With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

This is the eighth in a series of one minute videos that address one of the many complex challenges facing marketing, media and advertising today. The Golden Minute series is an attempt to prove Albert Einstein right when he said “The definition of genius is taking the complex and making it simple”.

But he also said “Everything should be made as simple as possible, but not simpler”. So we will leave it for you to judge. Please let us know here if there is a topic you would like us to cover in a Golden Minute.

 

How do you create high-performance teams?

Well if you look at what often passes as performance based compensation, you would think it is about taking money away from the agency before then setting an unreasonable and unrealistic performance metric, and then asking the agency to work at getting their money back.

Talk about all stick and no carrot.

Is it any wonder that so many marketers report that their agency performance remuneration efforts failed? Let’s be honest for a minute and admit that most of these performance models were really about reducing the agency fee and had very little to do with truly wanting to encourage performance. The technique would be applied usually as a way to get the agency to reduce their overall fee by 10% to 15% by placing it ‘at risk’ for an opportunity of earning back perhaps a maximum of 20%. 

When incentives turn out to be disincentives

Yet our experience reflects a lot of what we have seen with recent insights from behavioural scientists such a Dan Pink, where he found that when it comes to work requiring cognitive thinking, such as marketing, media and advertising, straight performance incentives do not work. In fact, they usually have the opposite effect.

So imagine the effect when the very process that is meant to provide an incentive to the agency is actually designed to be a huge disincentive, and on top of that, the whole approach is flawed anyway? No wonder performance based models got such a bad name. Basically, they were never really implemented in the first place.

But imagine if you could use the insights from behavioural science to actually use performance based remuneration models to encourage and reward enhanced performance. Now by performance, we are not talking about those agency performance score cards or surveys, which, while they have their place, are more focused on client satisfaction than team performance.

What we are talking about here is the opportunity to create a high-performing team between your marketing or brand team and the agency teams working on your business – much like a team of teams. A team aligned to a set of shared objectives and incentivised to collaborate with each other and all sharing in the rewards of success.

It is a model we have developed and used with our clients who are innovative and embracing next and emerging practices based on complexity theory and behavioural science insights.

Rather than using a performance incentive model to reduce agency fees, it uses a shared performance incentive to align your agencies and your marketing team to a single objective or goal and then rewards all based on the results achieved. The concept is based on the idea that the high-performance team is not just in marketing, or the creative agency, or media agency, or any particular area, but the high-performance team is the team working on the brand or the project at hand. The end result is achieved not by the performance of any one part of the team but the team as a whole coming together and aligning, engaging, and collaborating to deliver the result.

The point is that the reason performance based models have failed in the past is because the approach and the way they were implemented were never about performance, but more about cost reduction. But in fact, it is possible to build an incentive or performance model that drives the behaviour of a high-performance team across your marketing team and the agencies they are working with. It just takes some work to make it work harder.

Golden Minute Script

I love to get a bonus for a job well done. Don’t you?

But it seems that not many people can make it work with their agencies.

Perhaps it is because these incentives are often a big disincentive.

What do I mean?

Well often these bonuses are based on taking money off the agency fee. Lets say 10%.

Then if the agency delivers the results they get 15% back.

Now if that was your salary and I took 10% off you and gave you the opportunity to earn 15% back at the end of the year would you take it?

I don’t think so.

For an incentive it’s a big disincentive.

But that does not mean incentives don’t work.

You just have to make them work harder.

Read more on ways we can help you develop a value based or performance based agency remuneration model.

About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com

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