Most brands expect to change agency compensation models within the next three years

Driven by factors including AI and automation, three out of four multinational brands are seeking to change their agency remuneration model in the next three years, according to a study released today by the World Federation of Advertisers and MediaSense. Agencies typically bill clients by the number of hours their employees spend producing work on their behalf. But 58% of advertisers are looking to “increase their share” in output or outcome-based pricing, according to the study, which is based on a survey of more than 80 multinational companies collectively representing more than $60 billion in ad global spend. While this isn’t the first year the partners conducted this study, last year’s survey did not focus specifically on compensation models, so there are no comparative figures. There was one finding in the prior year’s study that said 74% of respondents expected a shift toward outcome-based pricing within the next three years. More from Ad Age: Independent agency compensation models Various factors are driving the shift for marketers, the new survey found, including a desire to better align agency remuneration to the advertiser’s intended outcomes (74% of respondents cited this as the reason). “Our commission model gives very little margin for us to challenge them in terms of performance,” one anonymous respondent said of their agency. “The number seems fair, but I’d prefer to establish a hybrid model where there’s a variable based on result or outcome.” Also read: How agencies should actually get paid AI and automation are playing roles, too, according to 26% of respondents. The technology is making agencies more efficient, prompting a change in how clients view compensation, said Ryan Kangisser, chief strategy officer at MediaSense. Marketers want to “speed things up and leverage automation,” but their agency partners are being “inhibited” by the traditional commercial model, Kangisser said. “The way to change the narrative and change the debate is to change the rules of the game.” Read: Behind MediaSense’s acquisition of R3 The roadblocks Measurement and transparency limitations may slow the speed of change toward outcome-based compensation, the study found. Eighty-four percent of respondents highlighted the lack of data and measurement between the advertiser and agency to measure outcomes as a major barrier. Moreover, only 28% of respondents felt they have transparency into how agencies make money—citing non-disclosed revenue streams such as opaque programmatic supply chains and principal-based media buying as examples. Related: When agencies become media sellers While brands may accept the overall principles of outcome-based models, they still want to know agencies aren’t “making more money than they should be,” Kangisser said. “That’s just quite a pervasive theme, because it’s such a competitive marketplace.” Agency Review Tracker Stay up to date with the latest account reviews Click here Agencies respond WFA and MediaSense offered several holding company and independent agency executives a chance to review the findings before the study was released. Their responses, which were offered anonymously, were fairly mixed. Some executives said they believed that clear goals and value alignment would make transparency irrelevant, while others countered that robust relationships require openness. “If it’s working and you’re selling, isn’t that all the transparency you need?” one executive commented. Many executives pointed to tension between different client stakeholders, such as procurement and finance, as preventing change in remuneration.“They want completely different things and it’s why good intentions quickly default to the norm,” another person said. Constant competition is also an obstacle, with agencies emphasizing they have to balance the “need to change with the need to win.” In pitches, for example, agencies aren’t going to “lead with some super elegant output or outcome-based model, when everyone else is putting forward a super efficient commission model,” Kangisser said, calling on advertising trade bodies to help effect change. Also read: Agency execs recall some fun pitch tactics Integration is also driving advertisers to reconsider their models, Kangisser said. The increased bundling of services gives some agencies greater comfort around risk—and reward—as they have additional opportunities to affect outcomes. “When you can control media, content, website experience, data, technology and measurement, my appetite for risk is far greater,” one agency exec said. A-List & Creativity Awards Enter for a chance to be recognized as the best in advertising Submit your entry here Other takeaways and what’s next The study found that the desire for remuneration change is not grounded in cost reduction (only 15% pointed to that as their reason), with 61% of brands expecting agency fees to increase over the next three years. Yet 58% of marketers said they would expect to pay agencies less as AI becomes more widely deployed. “It’s a bit of a paradox,” Kangisser said. Clients are saying, “‘We want to pay more, but we want to pay less.’” He added, however, that all capabilities aren’t “created equally.” As agencies’ businesses become more automated, brands will place a higher premium on strategy and executives capable of translating massive amounts of data, Kassinger said. MediaSense and the WFA recommended that advertisers experiment with new compensation models by “starting small,” such as testing with specific divisions, capabilities or markets. “Build the confidence that way,” Kangisser told Ad Age.

Most brands expect to change agency compensation models within the next three years

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