Warc Blog

Agency payment models slow to change

11 May 2012
NEW YORK: Agency remuneration models are proving slow to change, with less than 5% of major advertisers currently using value-based payments, a study has revealed.

The Association of National Advertisers, the industry body, polled 71 client-side marketing executives, including representatives from Brown-Forman, Dell, Ford, IBM, Intel, Johnson & Johnson and Merck.

In terms of global agency compensation, 57% of the featured organisations still utilised fees, either fixed or labour-based. An additional 37% opted for a mixture of fees and commissions.

By contrast, only 4% of the corporations surveyed had implemented value-based payment systems, rising to 7% for firms with an annual advertising budget topping $100m.

An even more modest 2% relied on sales commission, but none had yet instituted a similar structure premised on media commission.

But 49% of enterprises placed incentives or "pay for performance" elements within remuneration packages, reaching 68% for consumer-facing players, versus 38% for their business-to-business counterparts.

Incentives rested at least in part on agency reviews in 81% of cases, falling to 53% for hitting media targets and 47% apiece for attaining brand awareness and sales goals.

Elsewhere, 44% of respondents employed brand perception and market share metrics as part of this process, 41% used copy testing results, 31% prioritised digital media objectives and just 13% looked to actual profits.

When creating and managing advertising assignments, 20% of firms did so from the US, 11% has a regional model and 14% let individual markets handle these duties. A 51% majority, however, combined all three approaches.

For contract negotiations with agencies, 47% of companies reported that their procurement departments took the lead with marketing teams assuming a supporting role. These positions were reversed at a further 28% of firms.

Looking ahead, 35% of advertisers do not intend to change compensation levels in the "next year or two", 27% hope to cut payments, 24% will use more incentives and 19% anticipate centralising or consolidating payments.

"While many global marketers may establish their approach to agency compensation at corporate headquarters, most need to rely on their regional and local operations, in combination with their procurement colleagues, to effectively address significant differences in local costs, practices, laws and cultures," said David Beals, chief executive officer of R3:JLB, who worked on the study.

Data sourced from ANA; additional content by Warc staff

 
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