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May 9, 2001

By Jack Neff

CINCINNATI (AdAge.com) -- More than two-thirds of major U.S. advertisers used fee-based compensation with advertising agencies in 2000, up

from 53% three years ago, according to a study released today by the Association of National Advertisers.

The study, the ANA's 12th triennial survey, also noted a rise in performance incentive plans, used by 35% of major advertisers in 2000 compared to 30% in the ANA's previous survey in 1997. About 73% of incentive plans are linked to sales goals, 58% to agency performance reviews and 50% to brand or advertising awareness goals.

While incentive use continues to grow, the rate of increase appears to be slowing, according to the ANA.

Changing payment arrangements
But change of some sort appears to be on the rise. Nearly half of the respondents, 49%, said they had changed their compensation systems in the past three years, up from 38% in 1997.

During the same three-year period, use of billing-based arrangements, including fixed commissions and sliding rates, declined to 21% from 35% over the period. Another 11% used other arrangements, including fixed-fee or a mix of labor- and commission-based programs, about the same as in 1997.

More than three quarters of advertisers said they're generally satisfied with their current compensation plans, a level unchanged since 1997.

Among other findings:

  • Less than a third (31%) of respondents report employing a standard compensation agreement across U.S. and non-U.S.-based agencies. Over half (52%) say their agreements vary by country.

  • Increasingly, advertising production costs are billed to advertisers at net cost, a trend that continues since 1997. Among those advertisers still using commissions, 50% compensate agencies at a 10% rate of commission or less for production.

  • Responsibility for media planning and buying continues to be handled by the primary agency for 83% of advertisers, down from 89% in 1997 and 91% in 1994.

  • Although 69% of respondents claimed that they will work with their agencies to ensure the shops are profitable, 43% are not clear about what their agencies believe to be a fair profit, and 14% believe their agencies' profit goals are clear but excessive.

  • The use of specialized agencies to provide advertising services is common, with over 90% of respondents using a different agency from their primary agency for multicultural advertising; over 80% using specialist agencies for event marketing and promotions; and 62% using an interactive agency. Most advertisers use fee-based compensation for specialty shops.

Copyright May 2001, Crain Communications Inc.

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