Agencies Find That the Road to Performance Pay Is Paved With Good Intentions

The advertising industry has always been better at talking about the future than at arriving there on schedule.

That tension is on display again as agencies, facing pressure from artificial intelligence tools that threaten to reduce the value of their traditional labor-based billing, find themselves urging clients to embrace a new model: paying for results rather than hours. The concept, known variously as outcome-based remuneration or performance pay, has the appeal of aligning agency compensation with what clients actually want — advertising that works.

The difficulty, as is often the case on Madison Avenue, lies in the execution.

"The question for me is whether or not the business models, especially if you're a public company, can actually be broken without some kind of external force," one industry observer noted, capturing the essential bind. Publicly traded holding companies, which answer to shareholders expecting predictable revenue, may find it easier to advocate for new payment structures than to absorb the volatility that would come with them.

(It is perhaps worth noting that agencies have been predicting the imminent demise of the billable hour for roughly as long as the billable hour has existed.)

The current moment does carry a different quality of urgency. Artificial intelligence tools have begun to perform tasks — from media planning to content generation — that once required significant human effort, which is to say, significant fees. If an agency can accomplish in minutes what once took days, the old math stops working.

Still, transforming an industry's compensation model requires both parties to agree, and clients, who have spent decades negotiating favorable terms under the existing system, may be in no particular hurry to take on the risks of a new one.

The shift, when it comes, will likely arrive not through industry consensus but through competitive necessity — an external force, as it were, of a familiar kind.

Original story published in adweek.com: "ADWEEK Agencies Advantage: Brands Stall the Shift to Performance Pay"