This was the question in a recent Linked-In CMO Network Group:

"Advertising agencies are quick to create new ad campaigns but they do this with the clients money, Should agencies have skin in the game and be compensated based on results? If so do they deserve a higher payout if they succeed?"

Our POV:

Agencies have always had skin in the game. Every day agencies must deliver work that generates meaningful results or face dismissal. This has always been so. If agencies don't deliver, they're fired, shedding skin, blood and bone - sometimes enough to shutter entire shops in one blow. And when clients win, so do agencies - by being re-hired and building their portfolios of great work.

In 1983, Chiat Day was asked by Apple Computer to to make people think differently about Apple. They created "1984" - still perhaps the most famous, most studied ad of all time. No one knew then that technology, adoption and product would need 15 years to bring that ad's message to life. But the seed planted by that single ad would grow into one of the world's greatest Brands. What pay-for-performance model could have compensated the agency for success measured in decades?

The business of agencies is to create persuasion. In advertising, as with doctoring and lawyering, there is risk. Some outcomes are exceptional, some are good, some are bad (but rarely as bad as in medicine or law!). Yet there is certainly inherent value in the services agencies provide.

As others here have said, clients get the best results from agencies by truly partnering with them. Good clients carefully select their agencies as they do their employees, capital equipment suppliers and financial partners. This selection process and investment in relationship-building allies the agency with Client goals and long-term mission. Pay-for-performance bases relationships on immediate results and short term gains - changing the role of agencies from long-term brand value building to short-term gimmickry. The unintended consequences of pay-for-performance could be clients paying more for the same results, and the firing of clients for disappointing sales driven by factors agencies have no influence or control over. It could also make the advertising process more time consuming and difficult by requiring agencies to push back much harder on product and promotional direction to protect their bottom-line.

Agencies employee highly skilled, highly paid people. They pay for offices in some of the world's most exclusive real estate. They spend their own revenue to win new business, do speculative work and lure talent. They face the same growing cost of goods and travel that affect every other business. They help grow the local, national and global economy. Agencies are like any other business. They live and die by providing good service. What is true for the world's largest manufacturers, insurance agencies, law firms, and pizza parlors is true for agencies.