GM to scrap agency commissions

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General Motors Corp., the nation's top-spending advertiser, next year joins a growing list of leading marketers switching from commissions to a fee-based agency compensation system.

The change may come as soon as January, when GM's new North American reorganization starts, according to executives close to the company who requested anonymity.


The new system will include incentives, labor-based fees and be uniform for all GM's car ad agencies, said the executives.

The company's various agencies currently have different payment structures negotiated separately with each of GM's vehicle marketing divisions. The marketing divisions will be centralized under the new structure.


Philip Guarascio, VP-general manager of marketing and advertising for North America Operations, declined comment. But his spokeswoman said: "Our compensation structure has changed over the past two years and has been evolving."

Mr. Guarascio has said previously that GM would adopt a standardized agency compensation system after testing several methods.

A pilot program began in 1996 with a non-commission system for Leo Burnett USA, Chicago, on its Oldsmobile account. More recently, Buick is said to have tested a non-commission deal with McCann-Erickson Worldwide, Troy, Mich., and GM has an incentive system with General Motors Mediaworks, its dedicated media buying shop.


The auto giant will join other major marketers in switching from the once-standard commission system, including Ford Motor Co. in recent weeks.

The world's largest advertiser, Procter & Gamble Co., in January will begin testing a fee-based and incentive compensation system, replacing commissions.

Incentive-based deals have been rising since the early '90s, according to studies by the Association of National Advertisers. In 1992, an ANA study showed 13 percent of 136 major advertisers responding said their agency compensation included incentives tied to performance vs. 1.2 percent in 1989. ANA's 1998 survey revealed that incentive-based compensation was being used by 30 percent of respondents, up 11 points from the trade group's 1994 survey.

"Clients like fee arrangements because they can determine who's working on their accounts and how much time they're putting in," said Arthur Anderson, a principal in compensation specialist Morgan Anderson Consulting. "Clients want to pay fairly and they want results, so why not put some of the agencies' money at risk?"

Advertisers also are using more integrated marketing programs vs. traditional mass media, another reason for the move to fee arrangements, he added.


GM's Saturn Corp. subsidiary has had its agency, Publicis & Hal Riney, San Francisco, on a fee-plus-incentive program since it started selling cars in 1990.

Mr. Anderson said advertisers started making compensation changes in the late 1980s by reducing commissions based on media spending. And GM was on that wave.

In the late '80s, Mr. Guarascio reduced its shops' commissions from the traditional 15 percent to about 9 percent, plus fees for additional services.

Copyright November 1998, Crain Communications Inc.

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