Wednesday, April 29, 2009

How should advertising agencies be compensated?


At a recent ANA conference, Coca-Cola Co. announced that it is trying to start an industrywide movement toward a “value-based” compensation model. (Mullman, 2009).

It’s not exactly a new idea. Historically advertising agency compensation was based on a percentage of media spending, originally 15%. But, even before the separation of media and creative into different agencies made that system antiquated, many of my clients over the years were fee-based, with compensation tied primarily to hours worked, and bonuses built into the system to provide performance incentives.

The tricky part of course is how you define performance. While I firmly believe that advertising must produce sales in order to justify its existence, there is no doubt that external factors well beyond advertising’s control often bear the greatest responsibility for success or failure. Just witness how the current recession has boosted McDonald’s sales for yet another quarter.

Coke has indicated their assessment will be based on a range of factors including the work’s strategic importance, the talent involved, and the originality of the ideas produced. Hmm. Sounds kind of vague to me.

They go on to say that they are not concerned about the effect that this will have on their agencies since “they will bring their A-games no matter what”.

My question is, will they even have an A-game? Talent costs money, and presumably the base level compensation will be lowered, forcing agencies to hire less talented people for lower rewards.

I recently saw a wistful blog entry from a client who mentioned that account management staff used to have MBAs. I guess that agencies can no longer afford them.

Ultimately, what clients want better results. Is this the way?

Mullman, J. & Zmuda, N. (2009, April 27). Coke Pushes Pay-for-Performance Model. Retrived April 27, 2009, from

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