Ah, but, if big ideas are the gold of the business, they are still rewarded with copper. Agencies, according to Martin Sorrell, are forced to “give away” their most valuable asset: their intellectual property. What if agencies could mine that goldfield and stop the rot? Maybe they would finally find their way to profitability and pride.Now, from Great Britain a new shop–led by two seasoned veterans, M.T. Rainey, a former account planner with plenty of experience in the U.S. who most recently ran Chiat/Day’s London office, and Jim Kelly, who just resigned as managing director of Gold Greenlees Trott-is ready to point the way. Rainey Kelly Campbell and Roalfe is about to open for business, and everyone on this side of the Atlantic should wish them well. Their manifesto, announced last week, says they will seek to recruit clients on a “resource-based” compensation scheme with a grand payout. During the “thinking phase” after winning a new account, they propose to be paid a modest retainer to cover overhead and costs. The agency would then be expected to generate a new strategy for the client which would warrant a sizable “performance-based bonus” either in a huge, onetime payment or a series of”royalties” over the length of the campaign. Finally, in the third “expression” phase, the agency would again be paid a fee, while it created ads.Suddenly agencies could once again position themselves as marketing strategists, instead of ad factories. Their value, but also their trustworthiness to clients, would appreciate. They would be vested with equity in their best work. For example, as long as “Tastes great, less filling” appears in ads for Miller Lite, Backer Spielvogel Bates would be compensated. If the account moved to another agency, as indeed it did two years ago (to Leo Burnett), and the client still wanted to return to the line, Backer would still receive a royalty, or Miller would be forced to buy the copyright outright.“The whole industry is in the shape it’s in because we are not paid enough for what we do and paid too much for what we don’t do,” Kelly said last week. He believes clients are ready to experiment with new systems of compensation–providing their marketing dollars are not squandered on commissions and hyped media budgets. “The problem with the present (commission) system,” says Rainey, “is that even if self-interest is not at work (in media planning), there is a suspicion of self-interest. That, in turn, permeates the whole relationship. I think most enlightened clients know that what is most valuable in what an agency delivers are its ideas and are willing to pay for them as they would for any other creative service that transformed their business.”Lee Anne Morgan, partner in the New York consulting firm of Morgan Anderson, praises the resource/performance basics of the Rainey/Kelly plan. But she has reservations about the royalty proposal–if it is structured in what Rainey calls a “one-off,” upfront payment.“The idea of paying for ideas at the time of conception is naive and I would urge my clients not to buy into it,” said Morgan. “Ideas have to perform in the marketplace first. A client would be showing extremely loose fiduciary judgment to make such a major marketing investment before it performs.“Agencies must allow clients to see the success of their ideas in the marketplace or the incentive aspect of the program won’t work. It’s naive to think that a client can be presented with a board and be expected to say, “Hey, this is a great idea, here’s $2 million.”But that is a minor quibble. After all, most clients not only can recognize big ideas–they know well how to protect their shareholders. Under 15% commissions, there were abuses. Some agency chiefs took advantage of the kind of profit margins 15% can generate: They swallowed the costs of generating new work at the front end, hauling out hefty earnings at the back end. In today’s environment, though, clients don’t allow such excesses. However, in their zeal to turn agencies into cost-plus service centers, clients have ignored the enormous multiplier effect that great ideas can have. Currently, few clients are paying extra for extra value. The assumption is that by simply leaving their account with an agency, they have given it enough cash flow to make up for narrowing profit margins. And agencies, being so vulnerable, feel they can’t complain. Now there is a new ethic of compensation evolving that may open the way to a new kind of relationship with clients. We will follow the development of the Rainey/Kelly proposal with great interest.Copyright Adweek L.P. (1993)