Agency compensation has been through a number of metamorphoses in the last twenty years. Initially a 15% commission on media and 17.65% on production was the generally accepted standard throughout the industry. After a while, however, some of the larger advertisers felt they were paying too much and negotiated sliding scales which lowered commission rates at increasing spending levels. On the other end of the spectrum, some agencies working for smaller clients, with lower levels of media and production spending, felt they werent being paid enough for the staffing they needed to service the accounts. As a result, the fee-based systems, using the agencies own costs of doing business with overhead and profit added in, started to take over. At the present time these fee-based systems predominate.
Consequently, after working with it for a while, advertisers and agencies are now re-examining the entire concept. Value-based systems in which agencies are compensated for performance rather than straight hours worked is now one of the most frequently discussed topics at industry conferences. The question is how to measure value appropriately and apply it to compensation.
We at Triad have helped many of our clients formulate an appropriate compensation scheme with their agencies that is fair to both sides and easy to administer. Partner Dan Kaye, a licensed attorney, has specialized in this area and has also been instrumental in drafting and negotiating the non-monetary contractual terms and conditions for our clients agency contracts.