Commission based compensation is gaining ground as marketers seek to simplify agency pay, finds ANA
The number of ad agencies using media commission-based compensation systems is on the up, according to findings from the Association of National Advertisers' (ANA) in its latest “Trends In Agency Compensation” report.
Media commissions (i.e pay based on a percentage of spend) as a compensation model was used by just 3% of marketers in 2010. But commission rebounded to 12% of compensation models in 2016, the ANA said.
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, as the fee-based systems that replaced it begin to erode – falling from a high of 81% in 2013 to 68% in 2016.
The report also noted that "incentive" models do not tend to improve agency performance and that value-based compensation reappeared in use with 7% of marketers after an absence in the past two ANA survey. Meanwhile, more marketers are compensating multiple agencies (1.85 agencies each on average.)
"The ANA has been urging marketers to become increasingly involved and engaged in agency contract and digital media supply chain management. A key way to accomplish that goal is to be keenly aware of how media transparency issues are minimized within the framework of the client/agency contract," said ANA chief executive officer Bob Liodice.
"Now, our latest compensation research indicates that marketers are taking up that challenge by aggressively addressing transparency concerns and streamlining and simplifying agency compensation practices."
With senior management involvement in agency compensation, negotiations has more than doubled from 33% in 2013 to a high of 73% in 2016, the report states.
A third catch-all category dubbed “total other methods” has also been rising and now represents 20% of all agency compensation formulas.
The report also found that value-based compensation is used by just a small percentage (7%) of agencies and indicates that marketers continue to seek alternatives to traditional fees or media commissions.
Further, most marketers (53%) still negotiate agency compensation annually, yet the practice is down by 19% from prior surveys. Those who negotiate compensation “when required” has now reached 40%, up from 2013 (26%). Marketers who are compensating a wider nurser of agency types, (1.85 agencies each on average) implies the continuing trend among clients who are choosing an agency mix to get the expertise and results they need even it it means managing more agencies and their affiliates.