• by Joe Mandese , Today

Labor-based agency compensation models have fallen dramatically -- declining to just 19% currently, from 54% fifteen years ago -- a just-released World Federation of Advertisers (WFA) study finds.

The study, done in collaboration with Agency Mania Solutions, found that fixed fee/output models now dominate, representing 33% of the marketplace -- up from 20% in 2011.

Labor-plus-performance-based models have also more than doubled, rising to 21% from just 9% in 2011.

“Clients ultimately care about the quality, impact and performance of the work -- not how many people or hours were required to produce it," says WFA Director of Global Marketing, sourcing and director marketing services, Asia Pacific, Laura Forcetti, noting that "AI is accelerating this transition by enabling agencies to complete many activities faster, making time an increasingly weak proxy for value.

“The growth of hybrid approaches also shows that no single model suits every discipline or assignment. The future of agency compensation is not paying for effort, it is rewarding valuable work, delivered effectively.”

The study is based on a voluntary online survey fielded in May. The report does not disclose the number of respondents, but said they were mainly in a global marketing procurement role and that representatives from 69 multinational marketers participated.

The data was also compared with a similar survey conducted in 2022, which can be found in the report.

Looking forward, 63% of respondents said they expect increased use of performance-based fees, followed by value-based models (46% citing), and fixed fee or output-based models (36%).

Forty-two percent of respondents said they anticipate further reductions in labor-plus-performance arrangements, while legacy commission models continue to erode.

On the bright side, the study also found that agency relationships are now lasting longer than they did when the 2018 study was fielded, jumping to 4.3 years from 2.0 years.

In terms of media service accounts specifically, the study found a more varied model mix, with labor-based comp accounting for:

• Media planning: 41%

• Media buying: 34%

• Paid social: 30%

Global contracts are used by 67% of respondents for media planning and 61% for media buying.

Lastly, the study found that media rebates are a "separate issue" altogether, and that nearly two-thirds (63%) of marketers do not adjust media agency compensation against volume rebates, up from 60% in 2022.

Among those respondents who do adjust, they indicated it was "modest" --  25% say rebates offset less than 10% of agency fees, while only 7% report an adjustment between 10% and 30%. 

Editor's Note: Some figures have been revised by the WFA from an earlier version of the report.