Marketers struggle to pay agencies by results

Global marketers are increasingly tying agency compensation to results, but only a small proportion have managed to make it the core of their model, according to a new survey by the World Federation of Advertisers.

Performance is the primary criteria for paying agencies at 11 percent of marketers in the survey, up from 7 percent in 2011, the last time the federation conducted a similar survey. Performance-based remuneration forms the basis of agency contracts for around 15 percent of marketers in the US and Europe, but just 5 percent in Asia, the survey found.

A majority of US marketers incorporate a degree of performance based-pay in their agency contracts, according to recent research by the Association of National Advertisers, but the World Federation of Advertisers measured marketers who based their contracts on performance at the start rather than using performance measures as an add-on.

Some 66 percent of marketers in the federation survey said they wanted to link agency income more closely to their own performance, but the low percentage of those getting there shows how hard it is to implement.

“The slowness to adopt is for a number of different reasons,” said Steve Lightfoot, senior manager-global marketing procurement at the World Federation of Advertisers. “Advertisers make it too complicated — with some using up to 18 metrics, which is obviously way too many. You need to find sensible, achievable metrics that will motivate an agency, and agree on ways to measure them.”

“Not all agencies are willing to adopt the performance-based model because they don’t want to put too much of their earnings at risk,” Lightfoot added.

Another issue is how to bundle roster agencies together and create performance measures that are relevant across the board. “If you want your agencies to work together, you should have performance compensation across the roster,” Lightfoot said. “But how realistic is it for media to impact sales if the creative strategy is crap?”

Finding two or three joint metrics and one or two specific targets for individual agencies would be a better approach, he suggested.

The 2014 survey, which was carried out in conjunction with media management consultancy ID Comms, comprises data from 43 member companies operating in 12 different sectors and representing more than $100 billion in annual ad spend.

It found that the largest share of pay models, 49 percent, were still based on labor, although that figure fell from 55 percent in 2011. The second most popular model was fixed fees for a specific project or period, at 24 percent, followed by performance-based fees. – Agency report