New WFA agency remuneration research shows slow take-up of performance-related pay

The world’s biggest advertisers have been slow to introduce performance-related pay for agencies (although over a third say they are still planning to) with nearly half sticking to time-based remuneration. Procurement departments are taking over from marketers as the arbiters of pay.

These are two of the findings of new research carried out for the World Federation of Advertisers (WFA) by consultancy ID Comms. The research, the first since 2011, covers 43 WFA member companies, operating in 12 different sectors and representing more than $100bn in annual ad spend.

Changes since the last survey in 2011 include:

*A small rise in the number of contracts with performance-based elements 11 per cent up from seven per cent.
*A further 37 per cent planning to implement performance incentives
*Contracts increasingly likely to be negotiated by procurement (51 per cent vs 43 per cent in 2011)
*Marketing losing responsibility over remuneration (20 per cent vs 26 per cent in 2011)
*Asia sticking with fixed fee rewards (30 per cent using this model compared to eight per cent globally)

The most popular business performance metrics for creative agencies are sales volume and market/brand share, whereas for media agencies it is buying targets and composite performance scores. Digital agencies tend to earn their reward on the basis of sales volume.

Ad performance metrics being used for creative agencies included ad awareness and brand image shifts as well as predisposition to buy. Ad scores and ad awareness are commonly used for media agencies.

Soft metrics were more consistent across agency types with relationship management and agency service delivery being common, although media agency contracts were more likely to include elements related to administration, functional competence and thought leadership.

Across all agencies and in all regions worldwide, labour-based fees (labour time calculated by the hour or as a percentage of personnel time) remain the most popular model of remuneration, used in almost 50 per cent of cases, although this is a 6-point drop on 2011 data.

The use of commission (variable, fixed rate and sliding scale) is stable across all regions at 12 per cent, but rare outside of media agency agreements.

WFA managing director Stephen Loerke says: “Establishing common interests in true business success is essential for advertisers and agencies that want to build long-term relationships. This research reveals how the world’s biggest advertisers are working hard to build new relationships that move away from commission and give their agency partners a reward for the success they help generate.”

Copies of the WFA Guide to Agency Remuneration and Performance Metrics can be obtained here.