A Different Approach to Agency Compensation
After a 25+ year career working on the agency side, Denis Budniewski joined Verizon in 2019. He leads agency strategy, investment, ecosystem modeling, talent and performance management. Denis leads the Ad Agency diversity strategy for all Verizon business units, and he manages the strategic engagement and relationships with Verizon’s world class agency partners.
Denis has taken a keen focus on defining agency compensation and he sees three different ways to define the types of compensation for agencies.
- The input-based compensation usually is based on a retainer, either by time period or by project. It can also be implemented as a “pay-as-you-go” fee.
- The output-based compensation is often based on a set scope of deliverables, a license fee for work delivered, a negotiated rate card, fixed price or even commission.
- The final model is outcome-based compensation. This is usually tied to business performance of the client or brand, pricing performance based on media, clicks, engagement etc. or agency performance, measured by evaluation against set KPIs.
Each brand and company will first have to decide how it prefers to compensate its agency partners. Other key criteria will be the seniority and location of staff required by the brand. Are you looking to have the senior agency leaders work on your business, or are you looking for more of a tactical implementation of your work? Is your brand operating on a global level or local geographic level?
Before any discussion of compensation model, the starting point is your talent model. At Verizon, it is imperative to work with the senior innovators and brand leaders that each agency offers, and individual star performers play a key role in marketing of Verizon. Therefore, Verizon opted for adopting a loose federation of agencies where people are the most important key to success.
Verizon has developed and implemented six key agency partner principles to manage their eco-system.
The first principle is fairness and transparency. The VZ agency team stays abreast with agency and holding company performance and listens to the earnings calls. They discuss items that may impact cost both positively and negatively with their partners.
VZ has implemented a deliverable based agency compensation model. Denis, and his team, work with the marketers to define what the marketing team priorities are and what they expect the agencies to deliver. They then agree on the staffing model and the agency provides the pricing for the scope of work and all parties agree on the price for the deliverables.
In terms of driving performance, VZ has implemented an incentive model for their different agency partners. Most agency partners have an option to earn margin points, but the margin upside varies across the partners. This is because the larger and more strategic agencies have a larger impact on the specific KPIs through their work. They can also earn more than 100% of the set incentive as a percentage. Some of the KPIs available are business results, innovation, creativity, diversity, awards etc. What is key to your success if to figure out which KPIs are the most meaningful for you and your business.
One of the key benefits of the holding company model that VZ has implemented is the flexibility it offers both to VZ and its agencies. During covid, VZ worked with IPG to pivot the work towards different categories of work within IPG and did not cut the agency compensation.
Two of the main tools that has allowed Verizon to be successful at agency management is performance feedback and using a single data platform for scoping and survey tool. Verizon has hired people from the agency side, both from account management and new business roles, who are great at managing the scoping and evaluation process.
Of course, the Verizon agency management evolution did not happen overnight, and many folks have spent a lot of time to perfect this model. The evolution started back in 2019, when Verizon had over 1,500 unique deliverables. This is way too much to manage, and the team started a process of wrapping these into campaigns, instead of individual deliverables. This helped Verizon move from 1,500 deliverables to about 200 campaigns. While this was a huge step towards simplification, another step has been to rate campaigns by the level of complexity. This has further helped to have the right level of efficiency and fee metrics for each partner. In 2023, the focus will be on offshoring and to better understand how this can feed into the delivery model that is currently in place.
In summary, we see a lot of research and insights that marketing procurement can deliver to their internal and external stakeholders. A strong analysis to identify what the brands requires will help marketing procurement identify the best agency compensation for each brand under their purview.
