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Every agency wants to be paid its worth for its services, and there are many compensation models that agencies and brands use for payment, but finding the right one that is equitable for both sides, and is easy to implement, is sometimes as clear as mud. A new paper—a collaboration between the American Association of Advertising Agencies (4A’s) and the Association of National Advertisers, called “Decoding Compensation Models & Implementing the Right Model”—aims to clear things up.
Within the paper, the two groups included a breakdown of current compensation models. Agencies reported that fixed pricing—for both agency-of-record relationships and projects—was the most popular model of compensation, followed by hourly rate fees.
The paper addresses the current compensation model challenges and lays out what works and what doesn’t. It also seeks to enhance transparency, fairness and efficiency in how companies are compensated for their efforts.
The two trade organizations united because their members bring up the subject of compensation on a regular basis, so the 4A’s and the ANA wanted to educate members on different models to give agencies and advertisers a choice, because one size definitely doesn’t fit all on the issue.
Bill Duggan, group executive vice president at the ANA, has been with the organization for 24 years and has seen a hefty appetite for the subject of compensation the entire time.
“There hasn’t been a whole lot of significant change in compensation models in recent years. And the purpose of this paper is to lay out the options that are available now, and to get more marketers and agencies involved in how agency compensation evolves going forward,” Duggan told ADWEEK.
The compensation structures by marketers have not kept pace with rapid industry changes, states the paper. Some have fully converted to new models, while others use hybrid models. However, a bulk of agencies and advertisers are just starting to consider new approaches that incorporate input, output and outcome-based models, according to the ANA’s Trends in Agency Compensation study.
Industry insiders form a compensation task force
To help uncover all of the compensation models and how they can best serve the industry, the 4A’s and the ANA formed a collaborative task force, made up of brand marketers, agency executives, sourcing procurement specialists, marketing operations and others for a diverse and balanced perspective.
The ANA has been putting out compensation studies for 50 years, and earlier this year, the 4A’s released a study on the most prevalent compensation models with 149 participants for 357 projects and 342 AOR/retainer-based arrangements, so both sides came armed with plenty of information.
