ANA: Two-Thirds of Global Marketers to Change Agency Compensation

Performance Incentives Debated at Financial Management Conference

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As many as two-thirds of global marketers plan to change their agency compensation this year, according to a survey by the Association of National Advertisers and  the R3:JLB consultancy presented at the ANA Financial Management Conference in Boca Raton, Fla. Wednesday.

Of the 71 mostly large advertisers who responded to the survey -- 58% of them from companies with annual revenue of more than $10 billion and 61% having marketing budgets of at least $100 million -- only 35% said they had no plans to change agency compensation whatsoever. Another 27% said they plan to reduce or restructure agency compensation, while 24% plan on including performance incentives into their plans, and 24% plan to consolidate or centralize global compensation.  

The numbers add up to more than 100%, because some marketers are planning to make more than one type of change. Also, 16% of the marketers surveyed said they don't know or weren't sure of their plans.

The survey was conducted in February and March.

Other research discussed at the conference suggests the group of advertisers planning to reduce agency compensation and those planning to institute performance incentives may sometimes be a distinction without much difference. Research from the American Association of Advertising Agencies  shows agencies compensated using performance incentives tend to make less than others.

Performance incentives have grown to cover 46% of U.S. marketers in 2010 to 49% in the 2012 ANA survey of global marketers. Yet the 4A's found performance incentives account for only 3% of revenue for agency holding companies.

Handling the incentives is a sore point among some marketers and agency representatives, a point that became clear in dialogue during a session after the survey results were released. When a questioner suggested a survey to look at the degree to which agencies actually pass along performance incentives to the teams working on accounts vs. retaining them, Tom Finneran, exec VP-agency management services for the 4A's, said that in many cases agency overall compensation is "significantly less" under incentive plans, "so you could end up paying incentives to a group of employees when in fact they're a drain on the overall agency performance record."

Most agencies don't allow pass-through of client incentives to employees, Mr. Finneran said, for that and other reasons. "So that survey you requested ain't going to happen," he said.

But Jim Zambito, senior director for agency management/finance at Johnson & Johnson, said pass-through of incentives to agency team members is "not easy to do, but it can be done. We have a couple of cases where the people on our teams are incentivized by agency compensation. And it pays huge rewards. When we didn't have it, we weren't nearly as strong, and the agency wasn't performing nearly as well."

A questioner in Wednesday's session asked whether the industry may be putting too much emphasis on financial incentives, citing arguments in Daniel Pink's book "Drive" that such incentives often prove counterproductive. Mr. Zambito said non-financial incentives, particularly awards, have also proved motivational at J&J. The company's James E. Burke Awards, named after the company's legendary chairman during the Tylenol recall crisis, have really become "a rallying point for all our agencies and all our marketers."

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