OBSERVATIONS: Agency Theory as a Framework for Advertising Agency Compensation Decisions

R. Susan Ellis and Prof L W Johnson

Discusses `agency theory' and its implication for agency remuneration. Agency theory (literature reviewed) is concerned with 'co-operative behaviour, or risk-sharing, between two parties with potentially differing goals and different risk preferences: the principal and its agent'.

OBSERVATIONS: Agency Theory as a Framework for Advertising Agency Compensation Decisions

R Susan Ellis, and Lester W Johnson, University of Sydney, Australia

Advertising agencies have historically received the majority of their compensation either through commissions or through some sort of fee structure (Shimp, 1990). Under the commission system, a flat percentage (traditionally 15 to 16.67% but now sometimes lower) is paid to the agency on the value of all advertising placed in the major media (broadcast, print, and outdoor), and a similar commission is added onto the cost of producing the advertising and to out-of-pocket expenses. In contrast, the...

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