Agency remuneration is a controversial topic around the world, as advertisers renegotiate downward fixed commission rates or replace them with fees.
In Brazil, the official move away from a 1960s law setting commissions paid to agencies at 20% of media spending and 17% of production costs began with Ivan Pinto, president of the Brazilian Advertising Agencies Association in SÌo Paulo. Mr. Pinto pointed out last year that the deregulation of the Brazilian economy started by Brazil's president, Fernando Henrique Cardoso, would inevitably reach the ad industry by 2000. Although in fact many advertisers are already quietly negotiating much lower commission rates with their agencies, those in the Brazilian ad industry attacked Mr. Pinto for speaking out on the need to change the agency compensation system.
At the same time, Sergio Amaral, who is in charge of the Brazilian government's ad budget as secretary of communications, realized that the government, Brazil's largest advertiser with an ad budget of $250 million a year, was one of the few clients paying the full commission rate mandated by law. Mr. Amaral then summoned leading ad agencies to the capital city of Brasilia for a meeting in late 1996 and demanded change. If the Brazilian ad industry didn't use self regulation to reduce commissions, went the gist of Mr. Amaral's message, he would do it by law.
Mr. Pinto's ABAP has hired a consultant, Petronio Correa, former owner of SÌo Paulo agency MPM, to find a solution. The proposal he is working on with the ad industry entails a four-year transition period with sliding commission rates according to the year and size of the account. Small accounts under $1.5 million stay at the 20% commission rate, but the commission on an account over $25 million would fall to 17% in 1998 and to 15% by 2000. Fees, already widely used by multinational advertisers in Brazil, would be recognized as legal. Coca-Cola Co., for example, has said it pays its agencies on a fee basis in Brazil.
While Mr. Correa crafts a proposal for the Brazilian government with input from Brazilian agencies this month, cynical advertising insiders speculate that the proposal is merely a diversion designed to keep the government occupied. The hope, these insiders say, is that Mr. Amaral will eventually move on to another job and be replaced by someone less determined to change the system.