• Bloomberg, Wednesday, August 12, 2009 10:31 AM

Clients have talked about value-based compensation for years, but Procter & Gamble and Coca-Cola are actually implementing it, Kristen Schweizer reports. Brands accounting for 40% of P&G's sales moved to a new payment system on July 1 that eliminates billable hours. Coca-Cola, meanwhile, now has a value-based model in 35 markets including North America, and aims to use it everywhere by 2011.

Coca-Cola pays agencies an initial fee and up to a 30% performance-based profit. P&G hires one agency as a general contractor responsible for hiring ancillary services such as public relations. P&G pays the coordinator based on performance, sales and market share, and that agency pays the other entities.

"This is harmful for the ad agencies and they are very much against it," says Alexander Wisch, an analyst at Standard & Poor's Equity Research in London. "They are more accountable now," counters P&G finance director Rich DelCore. "It's about total consumer engagement and brand building."

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