• by Steve McClellan  @mp_mcclellan, October 2, 2012

Huw Griffiths has been a top research and analytics executive at Interpublic Group’s UM for the last four years. Last year,he was named to the new role of chief performance officer at the agency -- just one signal of how committed the agency is not only to performance, but to creating compensation models tied to the business outcomes of clients.

Griffiths talked about UM’s year-long effort to create the tools necessary to create workable pay-per-performance compensation models at a Tuesday Advertising Week session, along with his colleague Jeff Lupinacci, global CFO, IPG Mediabrands, the holding company’s media oversight arm.

Also on the panel was Hearst president and publishing director Michael Clinton. He described a very different experience developing pay-for-performance techniques that are usually tied to digital extensions, such as tablet devices, for Hearst.

According to Griffiths, the agency encountered two major obstacles on the analytics side of its business that blocked the development of viable pay-for-performance models. A lot of the data that needed to be analyzed was “siloed and disconnected,” he said. And some of the data wasn’t granular enough to provide the kinds of insights the agency felt were necessary to devise new compensation schemes.

Those obstacles resulted in a “time lag,” said Griffiths, that prevented the agency from analyzing data fast enough so adjustments could be made during a campaign if certain elements were not driving desired results. Data systems and measurement tools had to be reworked over what he said was a “12-month journey.” Now the systems and tools are mostly in place so the shop can create a pay-for-performance compensation model.

But many clients are still unconvinced that pay-for-performance is the way to go. “It’s a long way off before it's material to our revenue,” said Clinton, who estimated that about two of every 100 advertisers want to talk about pay-for-performance compensation.

“Change is tough,” acknowledged Mediabrands’ Lupinacci. “We are moving this way. Some clients fully embrace it, some don’t. In some cases, we look at brands and not whole clients. We’re not naïve enough to believe it will happen overnight.” One outstanding issue is that controls are not in place yet for auditing pay-for-performance compensation. When that occurs, he said, the industry is likely to see a dramatic shift by clients toward pay-for-performance models.

But such models require greater flexibility, improved communication and willingness on the part of clients, agencies and media companies to work differently with each other, said Griffiths. For example, if the analytics indicate that a particular commercial isn’t working, the agency might say, “I need you to pull that TV spot and substitute a print ad” on a moment’s notice. Such shifts have to occur without penalties, which are often imposed for short-notice changes.

Clinton questioned how UM deals with unforeseen events. What if a client brand loses a key distribution partner, like Walmart? “Game off?” asked Clinton. “It depends,” said Griffiths. “Some clients recalibrate new targets. But that’s the risk.”

Lupinacci added that such issues should be discussed upfront, when performance metrics are being hashed out. Performance isn’t necessarily about sales. Other metrics can be part of the compensation formula, such as market share or driving consumers to some specified part of the purchase funnel, like consideration or awareness.

“Alignment” is important, said Lupinacci, meaning that all relevant departments -- marketing, procurement and finance -- from both sides “should be in the room together and reach agreement on the model. There shouldn’t be any surprises.”