In the Wake of the 2017 Trends in Agency Compensation Survey

July 26, 2017

By Dave Beals, president of JLB + Partners

fatmawati achmad zaenuri/Shutterstock.com

 

Having now presented the latest ANA Trends In Agency Compensation Survey results three times, I remain surprised by some of the findings. Yet, upon reflection, not so surprised at others.

What is not surprising is a decrease in the use of labor-based fees and annual retainers. This is partly driven by today's rapidly changing, always-on media and marketing environment. More marketers are engaging agencies on an as-needed project basis. And, there are more agencies and types of agency specialists than ever before. In this environment, speed and simplicity come into play. If the marketer and agency can agree quickly on a fair project fee, or even a traditional commission for media services, why take the time to haggle over agency staff time and overhead allocations?

What marketers need to realize is that speed and simplicity can work against "transparency" goals. This is not to imply that agencies cannot or should not provide clarity on their proposed compensation. But, it might mean that neither the marketer nor the agency has time to get into a lengthy solicitation and negotiation of staff time allocations and cost break downs of overhead and profit margins.

For marketers that want to move quickly on a simple, fixed-fee proposal, their agencies should minimally be expected to provide a clear summary of how the fee was established (estimated time and labor rate, a fixed fee based on past, similar experience and deliverables. If a marketer chooses to employ a traditional commission, then it is important to align with the agency on what the commission will and will not cover.

What is surprising to me is the decline in the use of performance-based compensation. On one hand, the decline is understandable because of the dynamics discussed above. Putting together an effective performance-based compensation plan takes time to align on the agency's performance role and goals, and on how success is going to be measured.

On the other hand, in today's digital world, marketing and agency performance is more measurable than ever. While getting to the right performance-based plan is complex and takes time at first, it can lead to a long-term approach that is simple to maintain and update. And, one that can tie the agency's compensation truly to performance on behalf of the marketer, not to how many hours the agency spends or how much the client spends in media and production.

Companies like Coca-Cola and P&G have worked toward methods that are more purely performance-based. A number of agencies have also taken initiatives along these lines. But, they are a minority to date.

My advice to marketers looking to explore such an approach, but are worried about the time and complexity: look at it as a longer-term initiative and build towards the approach with your agency over time. You don't need to disrupt your current agency activity and compensation method in the short-term. Take the time to figure it out and get it right. Test it on a brand initiative or in market if needed.

My advice to agencies: if you want to get away from time sheets and having your fees based on hours vs. the results you are driving for your clients, then you need to step up and partner with your client partners to develop a performance-based approach. And, you need to be willing to take on some risk in exchange for the reward. You cannot lament not getting your fair share of the value you created for your client due to a campaign home run, without a willingness to accept little or no compensation for the inevitable strike-outs.

 

Dave Beals is president of JLB + Partners, a global consultancy specializing in marketing agency reviews, remuneration, and performance management.

 


The views and opinions expressed in Marketing Maestros are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.


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