GLOBAL BRIEF: Agencies lose commissions - Claire Cozens looks at why top advertisers are turning to fee-based remuneration

First it was Procter & Gamble, then Ford and now General Motors. Advertisers don’t get much bigger or more established than these, and all have decided in the past few weeks to switch from commissions to fee-based payment for their agencies. But is this the nail in the coffin for agency commissions?

First it was Procter & Gamble, then Ford and now General Motors.

Advertisers don’t get much bigger or more established than these, and

all have decided in the past few weeks to switch from commissions to

fee-based payment for their agencies. But is this the nail in the coffin

for agency commissions?



None of GM’s roster agencies, including Leo Burnett, Publicis and

McCann-Erickson, were willing to comment on the latest edict of

fee-based compensation.



However, GM has been experimenting with the idea since it began a pilot

non-commission programme in 1996 for Burnetts’ work on its Oldsmobile

account in the US.



More recently, it has begun testing a fee-based system on Buick with

McCann-Erickson Worldwide. GM is determined to adopt a standard

remuneration policy and admits to testing various systems.



A report published by the Incorporated Society of British Advertisers

earlier this year showed that fee-based remuneration is no longer the

exception but the rule. Of the 122 clients who responded to the ISBA

survey, 55 per cent said they paid their agencies a fee, with just one

third saying they operate on commissions.



Nick Phillips, the director-general of the Institute of Practitioners in

Advertising, believes the move to fee-based remuneration is inevitable.

’The most important thing is to have a clear agreement with the client

to ensure that the margins are fair,’ he says.



There is no set way of calculating fees, but agencies are agreed that

simply basing payment on the number of hours worked is the wrong

approach.



’The danger is that you end up focusing on the agency’s efforts rather

than on the end product,’ Peter Walker, the regional financial director

at Burnetts, says. ’There are much more sophisticated ways of

calculating fees that allow clients to reward their agencies for a good

idea.’



GM’s move may not spell the end for commissions. But with every big

advertiser that turns to fees, the argument that there is still no

credible replacement for the commission system becomes less and less

convincing.



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