Commissions Rebound As Agency Comp Model: Fees, Incentives Begin To Recede

After years of erosion, Madison Avenue’s original media commission-based compensation system is making a comeback, albeit marginally, according to just-released findings from the Association of National Advertisers latest “Trends In Agency Compensation” report.

The report, the 17th edition compiled by the ANA, shows that after bottoming out at a low of 3% of compensation models cited by respondents in 2010, media commissions has grown to the preferred model among 12% in 2016.

While that’s down from the majority of agency commission models cited when the ANA began tracking agency compensation models in the 1990s, it is on the upswing, while the fee-based systems that replaced it are beginning to erode -- falling from a high of 81% in 2013 to 68% in 2016.



A third catch-all category dubbed “total other methods” has also been rising and now represents 20% of all agency compensation formulas.

The report, which will officially be released Tuesday during the opening of the ANA’s Advertising Financial Management Conference, also found that so-called “incentive” models “do not improve agency performance. Structuring and managing effective incentive plans is complicated, time-consuming, and often ineffective.”

The study also showed that senior management involvement in agency compensation negotiations has more than doubled from 33% in 2013 to a high of 73% in 2016.

Other key findings include:

  • Value-Based Compensation: This newer method reappeared after no reports of its use in the previous two surveys. Although only a small percentage (7%) employ this method, it is a further indication that marketers continue to explore alternative approaches to traditional fees or media commissions.

  • Negotiation: Most advertisers (53%) still negotiate agency compensation annually; however, this practice is down 19% from the previous survey. Those who negotiate “when required” is at 40%, up substantially from 2013 (26%).

  • Multiple Agencies: Marketers are compensating a wide number of agency types (an average of 1.85 agencies each), indicating that clients are choosing an agency mix to get the expertise and results they need even when it means managing multiple relationships.

The report is based on an online survey conducted by the ANA in December 2016 and January 2017 among a sample of 82 member companies familiar with agency compensation practices at their companies, representing more than 1,100 client/agency compensation agreements.

Next story loading loading..