Marketers returning to commission-based pay models for agencies

Marketers are increasingly moving away from paying their agencies based on fees and incentives and instead adopting compensation models in a bid to ‘simplify’ pay models, according to a ANA report.

Marketers are moving away from using fee and incentive-based agency models in favour of compensation models as they look to “simplify” the relationship with their agencies and ensure they are getting the best value for money, according to a new report.

The research, by the US advertising association the Association of National Advertisers (ANA), says brands are becoming more aware of their agency compensation packages. It found that the involvement of senior management in agency negotiations has more than doubled from 33% three years ago to 77% in the most recent survey, undertaken in December 2016 and January 2017.

The report suggests this is a sign that brands are “waking up” and looking to clamp down on controversial rebate deals, which were thrust into the spotlight after a separate ANA report last year.

READ MORE: Marketers must take responsibility for media buying and fix the ‘disconnect’ with agencies

The involvement of finance, meanwhile, nearly tripled from 15% to 45% over the same period, with half of the respondents stating they had “recently changed” their rebate and bonus models.

“The ANA has been urging marketers to become increasingly involved and engaged in agency contract and digital media supply chain management,” says ANA CEO Bob Liodice.

“And our latest compensation research indicates that marketers are taking up that challenge by aggressively addressing transparency concerns and streamlining and simplifying agency compensation practices.”

The change in payment models

With growing scrutiny of agency pay, models have also changed.

The ANA found a rise in brands turning to commission- and value-based payment models. Some 7% of respondents now use the latter model, up from none in the previous two surveys. A further 12% use the compensation model, up from 3% in 2010 when it was “near extinction”.

At the same time, the proportion of labour-based fees dropped for the first time since 2006, although it remains the most used model.

Last year, a study carried out by K2 Intelligence on behalf of the ANA found evidence of a “fundamental disconnect” in the marketing industry regarding the basic nature of the advertiser-agency relationship.

READ MORE: Why agencies’ reluctance to talk about rebates is making marketers nervous

It said that senior executives at agencies were aware and regularly mandated controversial practices that were often not disclosed to clients. These included cash rebates, rebates as inventory credits and ‘service agreements’ for non-media services such as consulting or research.

Out of the 150 sources interviewed for the 2016 agency model study, 117 were involved in the media-buying space with 34 reporting that undisclosed rebates existed.