The No. 2 brewer wants to impose a model under which a greater portion of agency compensation is determined by how much of a shop's work is used, according to executives familiar with the plan. The change is part of ongoing contract talks.
The unit of London-based SAB Miller currently pays agencies a retainer. Agencies have the opportunity to earn bonuses for superior work and can increase revenue by taking on more work, such as new products. But a contract proposal calls for lowering the retainer and paying bonuses to agencies if they win assignments. Losing agencies would be paid a smaller fee for participating in pitches.
The change presents risks for the agencies. An agency that consistently wins jump balls could make more money, but others stand to pocket less. Compensation would also become less predictable for all.
More bang for buck
Miller has four roster agencies for its "trademark" brands, Miller Lite and Miller Genuine Draft. They are: Interpublic Group of Cos.' Martin Agency, Richmond, Va.; WPP Group's Y&R, Chicago, and Ogilvy & Mather, New York; and independent Wieden & Kennedy, Portland, Ore.
Martin, Y&R and Ogilvy referred calls to the client. Wieden declined to comment. Miller declined to comment.
The shift illustrates how marketers increasingly use incentive pay to reward agencies as they seek more bang for their marketing buck. In a survey last year by the Association of National Advertisers and search consultant David Beals, 38% of respondents used performance incentives in paying agencies. That's double what it was 10 years earlier. Fully 52% of package-goods companies used incentive pay.
But while Miller wants to pay agencies for the best work, the model could backfire, said Bill Nicholson, a former exec VP at the 4A's who now consults for agencies on compensation. Agencies might start "selling against the idea of what the client will buy" instead of what will move product, he said.
Similar to A-B
Miller's plan is similar to how rival brewer Anheuser-Busch pays its agencies. Miller already imitates A-B by using multiple agencies for brands. For Budweiser, A-B uses Omnicom Group's DDB Worldwide, Chicago; Goodby Silverstein & Partners, San Francisco; and others.
A-B pays agencies 70% of its compensation pie as base compensation, David Winking, director-global advertising production, said at an Association of National Advertisers' conference earlier this year. The remaining 30% is in a "flex pool" that rewards agencies that sell the most work.
Changing the compensation model continues the evolution of Miller's relationship with its agencies since SAB acquired the brewer. Last year, Miller took strategic planning in-house and beefed up its market research staff. In an effort to get the best creative input, the brewer held competitions for assignments.
So far the effort appears to have paid off. The work is generally seen as the brewer's freshest in years. Distributors are enthusiastic. And observers credit the "Good Call" campaign, which positions Miller Lite and Genuine Draft as better-tasting alternatives, as partly responsible for improved performance of the brands.
contributing: bradley johnson