agency compensation where do things go from here? beals handout - 201… · global 2014, wfa...

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Agency CompensationWhere Do Things Go From Here?

Presented to Mirren CEO SummitNovember 7, 2017

Agenda

• Current State of Compensation– Recent Trends– Issues/Challenges– Implications for Agencies

• Future State of Compensation– Implications for Agencies

• “Pitch” Negotiations

• Q&A/Discussion

2

Current State

3

The Current State of Compensation

• Fees remain the primary method of compensation for all agency services around the globe

– Some market exceptions like Brazil and Japan

• Performance-based remuneration not taking off (yet)

– Most marketers have tried employing incentives as an element of their agency compensation plans, but their use declined in U.S. over past three years

– Beyond some notable attempts (e.g., Coca-Cola and P&G), new sales or performance-based methods of compensation not widely taking off

4

U.S., Global Compensation Methods• Fee-based methods continue to dominate

5

0%

10%

20%

30%

40%

50%

60%

70%

80%

Fees Commission Performance/Value/Other

U.S. 2017, ANA

Global 2014, WFA

Sources: ANA Trends in Agency Compensation Survey, 2017WFA, 2014 Remuneration Survey

Global Compensation Methods• Fee-based methods continue to dominate – increase in

project-based fees mirrors recent trend in U.S.

6

17.1 19.2 10.035.7

3.4

31.913.9 34.8

55.0

24.0

13.9 40.7 3.9

9.370.666.8

69.1

74.4

72.2

0

20

40

60

80

100

120

140

160

180

200

GLOBAL BRAZIL MEXICO UK CHINA

MARKETERS 2014 (BRAZIL), 2015 (MEXICO, UK) AND 2016 (CHINA). DATA IN %.

FEE / RETAINER��

COMMISSION ��

PROJECT BASED��

MIXED MODELS��

DK/NA� /��

Source:

U.S. Compensation Trend• Use of fees has recently declined some in U.S.

– Rebound of commissions, mostly for media, programmatic– Continued exploration of value-based, other methods

7

7066

62 61

35

21

1016

3 512

3024

32 35

53

6874

63

7581

68

0 26 4

12 1116

21 2214

20

0%

15%

30%

45%

60%

75%

90%

1985 1988 1991 1994 1997 2000 2003 2006 2010 2013 2016

Total Commission Total Fee

Source: ANA Trends in Agency Compensation Survey, 2017

U.S. Compensation Trend• Fees the most common method across agency services

8

12%

22%

6%

24%

10%

9%

9%

13%

7%

12%

68%

51%

75%

51%

69%

76%

72%

79%

76%

67%

20%

27%

19%

25%

21%

15%

19%

8%

16%

22%

Total for All Agreements

Full-Service Advertising

Creative Advertising

Media Planning and/or …

Direct Marketing

Promotion/Event Marketing

Interactive/Internet/Digital

Multicultural Market …

Public Relations

Strategic/Branding

Total Commission Total Fees All Other Methods


Performance Incentives• Use has recently declined in the U.S.

– More marketers suggesting they are not working– Difficulty in establishing, aligning on metrics – a desire for

simplicity in compensation agreements

9

13%19%

30%35%

38%

47% 46%

61%

48%

1991 1994 1997 2000 2003 2006 2010 2013 2016


Performance Incentives

• 27% of ANA respondents indicate incentives are all “earn back” – a punitive agreement for agencies

10

42%

30%

27%

56%

36%

8%

65%

21%

6%

0% 20% 40% 60% 80% 100%

Bonus is all “upside,” above and beyond the agency’s base revenue

“Risk-reward” structure; some agency revenue at risk in exchange for upside reward

Bonus is all “earn back”; agency base revenue lowered and can be earned back through

performance

201020132016



• Similar findings in latest ISBA report in UK– Dramatic decrease in “PBR” (pay by results) for creative

agencies: 43% of remuneration plans– And, for media planning: 13% of remuneration plans– Significant decline in PBR payout

11

Source: Campaign online, 8/22/2016 (Paying for Advertising report, ISBA/Arc)

Pay By Results Pay OutCreative Media

2012 2016 2012 201650+% of bonus earned 75% 25% 63% 50%No bonus earned 15% 60% 19% 31%


• And, also on decline in China

12

8.7

57.3 60.9

69.6

39.5 36.821.7

2012 2014 2016

� YES

� NO �

� DK/NA ��/��

14.72% 12.40% 11.50%AVERAGE BONUS % BASED ON

ANNUAL REMUNERATION�� ¤

Source:


• Life at the client negotiating table won’t be getting any easier

• Marketers under intense cost pressures …– Global competition– Disruptive new technologies and competitors– The rise of “always on” social and one-to-one

communications with the corresponding need for always on and highly variable content

• … which, in turn, forces marketers to do more with less via their agencies (and most all of their other suppliers)

13


14

Marketer Agency


• The threat to agency bottom lines is increasingly less about “rate” negotiations and more about “service” negotiations

– Marketers can only push fees down so much with any given agency partner without sacrificing desired performance and work/service quality

• Marketers are increasingly:– Looking for opportunities to shrink and consolidate the

number of their roster agencies– Retaining services from “non-agencies”, or taking in-house– Moving to project engagements vs. annual retainers

15

The Current State of Compensation• Increase in “when required” vs. “annual”

compensation negotiations reflects:– Move to more project-based vs. annual retainer

agreements– Rapidly changing media and agency landscape –

marketers bringing new services on ad hoc, and increasingly reluctant to get locked into annual retainers

16

Frequency of Negotiation 2010 2013 2016When Required 23% 26% 40%Annually 61% 72% 53%


Supply-Demand• The supply-demand dynamic has not been in the agency

industry’s favor– Agency “supply” far outpaces demand globally and locally– Somewhere in vicinity of 100,000 agencies of all types in large

markets like U.S. and China – and plenty of options in most every country and major city around the globe

17

AgencySupply

AgencyDemand

Supply-Demand• Agencies must now contend with multiple other service

providers– Proliferation of specialists: social media, content, production, etc.– Tech firms and consultants offering advertising services– Direct-with-media contracts for media placement, content

services– Third party marketing tech services for programmatic media, etc.– Clients taking services in-house: particularly for on-going digital

and social content and management

18

2008 2013In-House Agency Penetration (U.S.)

42% 58%

Source: 2013 ANA In-House Agency Survey

Supply-Demand

19

Ad ServicesSupply

Ad ServicesDemand

Agencies• Ad, digital, PR, DR, Social Media,

etc.

Consulting firms acquiring agencies

Tech Firms• Google, Facebook, etc.

Content, Asset Mgt. Specialists• Hogarth, Tag, Redworks, etc.

Third party marketing tech,programmatic services

Direct-from-media content services

In-house agencies

Good-Fast-Cheap• For years, the expectation was for 2 of 3• Today’s expectations: all 3!

20

Good Fast Good Fast

X Cheap X

Cheap

THEN NOW

Implications For Agencies

It is not all doomand

gloom!

21


Things to Optimistically Consider:

1. Agency roster consolidation a threat, but also an opportunity – Marketers starting to increasingly invest more with fewer, better agency partners– May require some proactive agency investment in the

relationship to help cement a seat at the table– Effective leadership and synchronization of multiple

agency services more important than ever (for sister agencies of holding companies or partner agencies of independents)

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2. Procurement focus is starting to shift from cost-cutting to value-add focus – only so much more blood to squeeze out of the compensation stone– Work to establish a relationship with procurement, both

with your existing clients and new prospects– The good procurement execs want to learn more about

what you do, and where you can add value

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3. Post-”tech disruption”, companies re-discovering that marketing and advertising can be a competitive difference-maker– Opportunity to help your Client CMOs demonstrate and

sell the value of marketing communications to their organizations

24

Implications For Small / Independent Agencies


1. Leverage your size and/or independence– Greater flexibility to financially invest in your client

relationships vs. publicly-held agencies: e.g., ownership and senior staff commitments to your clients; taking on project vs. retainer

– Experience as a ”one stop shop” for your smaller and mid-size clients …

– … But, with greater flexibility to bring the right service partners to the table (when needed)

25

Implications For Small / Independent Agencies


2. Smaller marketers more likely to engage fewer agency partners (or other ad services companies)– Many do not have the staffing and bandwidth to

manage multiple agency relationships– They are more likely to be open to a smaller,

independent agency that can ”do it all”, either in-house or in partnership with other agencies

– More likely to rely on their agency to hire and manage third party services providers

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Implications For Digital Agencies


1. Increasingly, “traditional” marketers comfortable with “digital” having lead seat at the table– “Digital” vs. “Traditional” rapidly blending together –

within a few years, nobody will be segmenting agencies with these definitions

– You do need to invest in good strategic and account leadership – and continue to improve your operations (the traditional ad agencies are generally still perceived as better in these areas)

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Implications For Digital Agencies


2. Opportunity to leverage in-house digital design and production capabilities– A potential efficiency advantage vs. more traditional use

of third party production resources– Be clear with your clients on what are “fee” vs.

“production” dollars (otherwise you risk being perceived as too expensive)

– Stay abreast of recent ANA Production Transparency report

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Implications For All Agencies

Where to focus?

• With all the options available to marketers, the need to focus on what you do best is more important than ever -- don’t get trapped into promising services you are not good at, tempting as it might be

• Certain services will become relatively more “commoditized” and hard to win on a low cost basis: e.g., 24/7 content execution, data services

• But, creativity, difference-making insights, and effective campaign orchestration/leadership unlikely to ever become commodities

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Future State

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The Future State of Compensation• Despite recent trends, the primary method of

agency compensation will ultimately move to “pay for performance”

– Increasing sophistication of real-time marketing performance measurement, and ability to attribute to specific activities/agency contributions

– Increase in addressable, measurable media (in all channels)

– The client CEO and CFO will increasingly demand it – as will the CMO to help keep their job!

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The Future State of Compensation• Despite recent trends, the primary method of

agency remuneration will ultimately move to “pay for performance”

– Procurement can only reduce agency costs so much – they need to start showing how they can improve value for their company’s top line brand and sales growth

– Agencies tiring of debilitating negotiations around FTE and fee reductions, and will increasingly see pay for performance as a better path to improved revenue and profitability

– New competitors will likely start pricing more along these lines, even if existing agencies do not

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The Barriers to Performance-Based?• Why are we not seeing a greater shift to

performance-based already?

– Difficulty in achieving internal client alignment on the definition of “success” and how any individual agency’s contributions are tied to it

– Difficulty getting to client-agency alignment on contributions and metrics to measure

– Marketer resistance to change: agency hours and rates are a simple common denominator to negotiate and track

– Agency resistance to change: the fiscal uncertainty around fully, or even significantly, tying remuneration to performance

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1. Steer your client compensation dialogue to “performance”– Even if the methods and metrics are not in place to

execute an effective pay for performance plan, get the seeds planted with your clients and prospects – try to get them focused on the value of what you are delivering, not what you are costing

– And, where the right methods and metrics are available, take a run at a pay for performance approach

• You can walk before you run: test it out hypothetically under your current compensation agreement

• Set it up as a percent of your remuneration (an incentive) vs. putting all of your revenue and the client’s fee budget in play – then determine if you can dial it up further

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2. Get smarter on performance tools/analytics– Even if a big investment in data/analytics is not right for

your agency, at least invest in executive talent or partners that can bring the right knowledge and experience to the table for you

– Most larger marketers will have their own data group, or specialist data/analytics agency anyway, but you will want to be able to have an effective dialogue with them about how to track the performance of your contributions, and the corresponding, fair remuneration

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3. You will have to accept risk with reward – but also need to insist on reward– The better performance incentive plans are currently set

up in risk-reward fashion – the agency earns more for exceeding performance goals, less for under-achieving them

– Many marketers can be convinced to pay you more for stellar results, but you cannot then expect profitable compensation for underperformance

– You should strongly push back on clients or prospects who expect you to start in the hole, and “earn back” fair compensation – walk away if they insist (and if you can afford to)

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“Pitch” Negotiations

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Pitch Negotiations

The most common agency mistakes are at the start• Failure to have a firm stance on what you will accept in terms

of compensation method or amount• Willingness to accept poor client or consultant briefing on

scope and budget parameters• Failure to ask about the requirements and client expectations

at the start of the review; e.g.:– Method of compensation– How will proposals be solicited– What type of “rate” and/or cost and profit detail will be

required

38

Pitch Negotiations

Considerations in preparing proposals• Address the client request – nothing makes it easier for a

client to reject an agency than to not answer their questions• But, if you have a better idea, put that forth too (“give them

what they want, give them what they need”)• If procurement is involved, don’t assume it is all about lowest

cost – try to make a case for your cost/value• What can you offer as a “value add”?• Try to make it simple and easy for client to digest• If cost transparency is requested, then be transparent (or

don’t pursue)

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Pitch NegotiationsConsiderations in negotiations• Have your negotiating plan and strategies worked out in advance

(most clients, especially procurement executives, will). Know where you are willing to give or not.

• Consider alternatives to the client demands: e.g., can you offer some added service in exchange for not reducing the fee?

• Again, try to steer the discussions to cost-value and performance. The smart marketing and procurement execs will engage on this.

• Know your details and assumptions: if you can’t explain your staffing and remuneration details, you risk having the client assume you are guessing or hiding something

• Determine the point at which you are willing to walk away – if you impressed the client in the pitch, they will be reluctant to dismiss you over price (and if they aren’t, you don’t want to work for them)

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Questions/Discussion

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Thank You!

David [email protected]

312-396-4155www.jlbp.com

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agency compensation where do things go from here? beals handout - 201… · global 2014, wfa...

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