• by Joe Mandese  @mp_joemandese, December 13, 2022

Performance incentive models of compensation, which consistently rose in popularity among marketers since they were first benchmarked in 1991, have been waning for nearly a decade, according to the 2022 edition of the Association of National Advertisers' periodic "Agency Compensation Report."

Use of performance incentive models, which pay agencies incremental fees based on achieving pre-set goals, fell to 41% of ANA member respondents this year, down from 48% in the ANA's last study in 2016, and down from its high of 61% in the ANA's 2013 report.

"[Incentives] as a complement to fees is under scrutiny more than ever, as most marketers said they 'don't know' whether performance compensation is improving their agency's performance," notes the report, which was released this morning.

Various forms of fees -- including both labor-based and fixed output-based fees -- continue to grow as the dominant form of agency compensation, now accounting for 82% of all agency compensation models.

Media commission-based compensation models, which were the original format used by most modern advertisers and agencies early in the ad industry's inception, have fallen to just 7% of respondents, down from 70% when the ANA first began surveying members on the bujct in 1985.

"Total other" formats not classified, accounts for 11% of respondents, and also appear to be receding as fixed output-based fees become the most popular method, supplanting labor-based ones.

“One likely reason for a switch from labor-based to fixed or output-based fees relates to greater administrative efficiency,” the report states, adding, “Because the fees are based on outputs, there is no review or haggling over agency labor time. A second reason is more philosophic and may relate to marketers who want to compensate the agency for what they produce, not the time it takes to produce it.”

The 2022 report surveyed ANA members using a variety of agency relationships, from full-service to create, media and other speciality services.

In 2019, the ANA did conduct a member survey of agency compensation models used for media-only accounts. It found that two-thirds of members has updated their media agency contracts in response to an ANA probe revealing some less-than-transparent agency revenue models, including explicit kick-backs from media suppliers.