More performance-based agency compensation = happier marketers: WFA

At the same time more marketers are shifting toward paying their agencies based on performance rather than hours worked, client and agency relations have been improving, says a new survey from the World Federation of Advertisers (WFA).

The trend toward performance and outcomes-based remuneration has been on the rise for some time according to the WFA, but the new numbers reveal the degree to which it has grown. The WFA also credits the shift to performance based models as a key contributor to improved client-agency relations.

“The move to performance-based remuneration is a recognition that where agencies and advertisers are aligned, the outputs are more likely to be better for both,” said Laura Forcetti, global marketing sourcing manager at WFA, in a press release.

Here are some of the key numbers, based on a survey of 42 large marketers with combined communications budgets of more than $84 billion:

  • In 2011, 20% of WFA respondents were using output-based fees as the “main corporate remuneration contract.” Today, that number has risen to 28%, while another 15% are using a combined model of performance and labour-based fees, up from 9% in 2011;
  • In 2011, WFA found that 54% of responding marketers relied on “pure labour-based contracts.” That number had dropped to 39% by 2014, and today stands at just 36%;
  • 81% of respondents plan to introduce more performance models in the next year.

The press release doesn’t reveal any data connecting changing models with improved relations, but does show that at the same time marketers are moving toward more performance-based models, they believe they are getting value for their money.

Nearly three-quarters (71%) of respondents agree—19% of them strongly—with the statement: “I feel that changing my current agency remuneration models would improve the relationships that I have with my agencies.”

  • 87% of responding marketers said they are getting value for their money from agencies, up from 67% in 2011, and 70% believe their agencies are now accountable for what they create;
  • However, 52% of respondents feel their agencies aren’t being fully transparent about costing models, and just 31% say they are getting a “highly detailed scope” from their agencies—which the WFA identifies as the cause of “the vast majority of issues with fee negotiations.”

The Message reached out to Scott Knox, head of Canada’s Institute of Communications Agencies (ICA), to ask about the movement towards more performance based models. “This is welcome news for the industry; at last we see the sector stepping away from the hourly rate card towards outcomes and, therefore, value,” he said. “To propel this further and properly, brands, and in particular procurement, need to alter their RFP processes to seek out value and end price as the motivator for selection. Cost cutting has to stop and value creation set as the standard.”

—David Brown

David Brown