Agency Compensation Increasingly Fee-Based

August 20, 2013

This article is included in these additional categories:

Agency Business | Financial Services | Uncategorized

ANA-Agency-Compensation-Agreement-Trends-Aug2013Agencies are increasingly being compensated on a fee rather than commission basis, a shift that first took place in the mid-90s and appears to show no signs of slowing, according to final study results released by the Association of National Advertisers (ANA). The 98 client-side marketers responding to the survey, who represented more than 1,000 agency agreements, indicated that fee-based agreements dominate (81%) in comparison with commission-based (5%) and other (14%) methods.

Aside from a dip during the 2006-2007 period, fee-based compensation has shown steady growth for more than two decades, according to the report. Interestingly, while newer methods (such as value-based and sales commission) of compensation had been increasing in popularity over the past decade or so, their appeal seems to have subsided of late, according to the study. In fact, none of the respondents indicated use of value-based agency compensation this year. Changes in compensation approaches appear to be driven by agency performance motivations rather than cost-cutting, a reversal from the 2010 data, although the results are based on a small sample.

Labor-based fee compensation is driving the growth in fee-based compensation, per the researchers. This was the compensation method of choice for 65% of agreements this year, up from 49% in 2010. By contrast, fixed, or output-based fees have declined over the past decade.

Another trend seen in this year’s study is the growing use of performance incentives, with 61% of marketers employing incentives with at least one of their agencies this year. That compares with 46% in the 2010 study and 38% in the 2003 study. The use of incentives is significantly higher among larger spenders than their smaller counterparts.

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