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
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
’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
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