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Advertisers explore agency compensation alternatives

News, 24 May 2017
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SAN DIEGO: Advertisers in the US are looking to simplify their agency compensation practices, according to a new report which finds a shift away from the use of fees and incentives, in part because of transparency issues.

The latest Trends in Agency Compensation study, which the Association of National Advertisers carries out every three years among client-side marketers, was conducted among a sample of 82 member companies representing more than 1,100 client/agency compensation agreements.

This found that labor-based fees had declined for the first time in ten years. And while it remains the most-used method, the study observed that it was losing momentum in favor of a small but increasing use of traditional commissions and value-based compensation.

The use of incentives had also declined significantly for the first time in the 50 years the survey has been conducted.

Respondents indicated that incentives do not improve agency performance, while structuring and managing effective incentive plans is complicated, time-consuming, and often ineffective.

Commissions, on the other hand, have recovered from near extinction – in 2010 they were used by only 3% of survey respondents in 2010 — to be used by 12% percent, primarily for media services, and for programmatic media in particular as this involves both human labor and technology costs.

A similarly small proportion of respondents (7%) used value-based compensation, but having not featured at all in the previous two surveys, the ANA held this up as further evidence that marketers are exploring alternative approaches to traditional fees and media commissions.

Changing compensation arrangements are, in part, a result of the findings that emerged from last year's ANA media transparency study, carried out by which investigative consultancy K2, which claimed that non-transparent business practices were "pervasive".

Respondents to the current study indicated that not only were they examining and restructuring their contract agreements as part of their overall agency compensation practices, but that the involvement of senior management in agency negotiations had doubled while the involvement of finance had almost nearly tripled.

ANA CEO Bob Liodice observed that the industry body's calls for marketers to become more directly involved in agency contract and digital media supply chain management were being heeded.

"Our latest compensation research indicates that marketers are taking up that challenge by aggressively addressing transparency concerns and streamlining and simplifying agency compensation practices," he said.

Data sourced from ANA; additional content by WARC staff

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