In Compensation We Trust

Ironically, the critical component of a performance-based compensation plan happens to be the most elusive – mutual trust between negotiating parties.

Consider the tumultuous relationship between Washington, DC public school chancellor Michelle Rhee and the principals, administrators and teachers under her charge. Everyone affiliated with the District’s poor performing public school system agrees attracting and retaining top-notch teachers provides the foundation for an exceptional educational experience.

Rhee’s novel approach is to establish well defined performance benchmarks for teacher evaluation and then structure compensation accordingly. Teachers who score high will be paid above industry standards, while those who fall short will be out of a job.

Sounds good in theory. Yet, the lack of trust and respect between Rhee and the teachers’ union has railroaded the negotiation process and created a poisonous environment that further erodes the quality of service delivered by the District.

Does the same fate await advertisers like Procter & Gamble and Coca-Cola as they install a new performance-based compensation model for their ad shops?

My bet is “no.” Each party involved has too much at stake to let petty politics and grand-standing block what has the potential to be a more open, honest and productive relationship.

The ad agencies are putting their margins on the line and, accordingly, are in a better position to demand that their ideas and tactical approaches be implemented.

On the other side, advertisers no longer have to guess at the motivation of their creatives when reviewing work. Is this in the best interest of my company or merely designed to win awards?

I’ll be interested to see where this path leads and if this is the all-important first step to redefining how professional services firms are compensated.