Impact Over Input: What Outcome-Based Remuneration Really Requires

By Adam Edelshain, VP Client Solutions

“How should media agencies be paid?” is a question I’m being asked more and more frequently.  The 1990s was a decade dominated by commission-based payments, while the 2000s saw labour-based remuneration begin to take over. But times have changed significantly since then. Remuneration models are now increasingly varied and match the complex environments they operate in.

Applying a fresh lens, it seems obvious that the best outcome for all parties involved would result from alignment between brand and agency incentives, with agencies rewarded for performance against brand-set targets – and yet, Outcome-Based Remuneration (“OBR”) represents only a small fraction of the remuneration model landscape.

Until relatively recently, it was extremely difficult (if not impossible) to demonstrate the contribution of media on outcomes. But as spend shifts further towards digital, as granular data and measurement technology become more widely available, and as attribution models improve, I want to re-ask the question: should OBR models be taking centre stage?

A shift in thinking

Recent mediasense-led research into outcome-based remuneration suggests that both advertisers and agencies are becoming more interested in linking compensation to outcomes rather than inputs (time/labour based).

Marketing leaders are under growing pressure to justify spend and produce results. AI and automation are changing the economics of agency work. And hours spent optimising campaigns or producing deliverables are becoming increasingly poor proxies for delivered value. In this context, paying for outcomes rather than activity feels like a natural shift. But in practice, it is more complicated.

In our report Impact Over Input: The Shift to Outcome-Based Remuneration, “fairness”, “simplicity”, and “driving the right behaviours”, ranked first, second and third respectively in the list of most critical success factors for OBR according to the senior agency survey audience.  These factors give us some insight into the reasons why we haven’t seen rapid growth of OBR.

The real barriers to OBR

The biggest challenges to OBR adoption don’t stem from a lack of agency appetite, and from our last study on agency remuneration with the WFA, it became clear that advertisers are interested in OBR too.

The real obstacles it seems are a combination of practical and organisational issues. Key challenges included difficulty agreeing attribution models and insufficient access to data, while procurement challenges (difficulty in comparing remuneration models and a reluctance to experiment) and complexity of model design and set up were also consistently identified as a strong or critical barrier to implementing OBR models.

To make OBR work, advertisers and agencies need to answer some difficult questions:

• Which outcomes matter most? And is everyone (from procurement through to finance) in agreement on this?
• To what extent can agencies influence the outcomes?
• How will success be measured? What attribution models should be considered?
• What happens when external factors influence performance?
• Who carries risk when outcomes are missed?

These questions underpin the challenge facing OBR. There are a lot of important factors to consider. Simplicity is aspirational but not necessarily achievable. As a result, trusted relationships become even more important as an enabler.

Where technology and AI fits in

If trust is the main enabler, technology comes a close second.

The push factors are clear – as automation and AI reduces the amount of human effort needed for planning, optimisation and execution, traditional time-based remuneration models won’t be sufficient to cover the costs of the investment in, and maintenance of the technologies that deliver the campaigns. If fewer hours are required to create the same – or better – results, compensation naturally starts to shift towards value creation rather than labour inputs.

And there are pull factors too – in the mediasense study,  improved attribution and  measurement tools was rated second behind willingness to share data as the most likely factor in supporting adoption of Outcome-Based models.

But technology alone cannot create trust between organisations. It is merely a tool to support advertisers and agencies in determining a fair way to work together.

What happens next

So what does the future hold for OBR?  Despite some barriers being positively impacted by technology changes, there are still a number of other challenges to be overcome. And this is why the future of OBR is unlikely to be a simple story of rapid transformation.

Overall, we expect that hybrid models will continue to prevail, in spite of an ever increasing percentage of remuneration linked to performance metrics.

Interestingly, there is also the possibility that we may see selective adoption – and acceleration – of OBR, particularly amongst digitally mature industries, where agencies have more control (eg. Creative and media). Within these areas, we expect that some advertisers and agencies will build the data foundations, governance structures and collaborative behaviours needed to make OBR work well.

As the industry continues to explore outcome-based models, the key question is not whether OBR will grow – it almost certainly will. The more interesting question is whether the industry’s operating models, governance structures and client-agency relationships are evolving quickly enough to support it.

If they are not, changing the payment model may simply expose deeper issues rather than solve them.

Impact Over Input: The Shift to Outcome-Based Remuneration was produced in collaboration with the WFA and Meta.

Download the report