After conducting the 17th edition of our "Trends in Agency Compensation" research, we've put together four action items for marketers looking to improve agency relationships and their compensation models.

1. Ways to Strengthen
Agency Relationships Through
Compensation Models
4

2. The ANA recently completed the 17th edition of its “Trends in
Agency Compensation” research, which is conducted every three years
to track compensation practices among members. With this research,
we’ve established four key action items for marketers that will provide
clarity around compensation and improve agency relationships.
Ahead, you’ll find those recommendations.

3. 1Collaborate to Align Incentives
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4. Building an incentive-based payment scale can be a challenge, but the
rewards make it worthwhile. That is, as long as you and your agency
align on the incentives. In an ideal world, incentive-based goals will be
tied to and measured against the agency’s contributions to quantifiable
business and/or marketing goals.
4© Copyright 2017 by the Association of National Advertisers, Inc. All rights reserved.

5. Increasingly, marketers are using the “earn back” incentive model. This approach
is generally unpopular with agencies.
The Basis for Performance Incentives
An increasing number of respondents are using the “Earn Back” incentive method in 2016, as shown
in Figure 11. The earn-back approach, which is generally unpopular with agencies, might be another
factor in the declining use of performance incentives.
FIGURE 11 Performance incentive basis from the past three surveys.
2013 20162010
Bonus is all “earn back”; agency
base revenue lowered and can be
earned back through performance
“Risk-reward” structure;
some agency revenue at risk in
exchange for upside reward
Bonus is all “upside,” above and
beyond the agency’s base revenue
6%
21%
65%
8%
36%
56%
27%
30%
42%
A large majority of the companies (73 percent)
that use agency incentive programs provide
different tiers of incentive rewards for different
levels of agency performance. One of the
issues with using performance incentives is that
marketers and agencies often perceive them
differently, as Intel’s Keshmiry notes: “I love
The Basis for Performance Incentives
An increasing number of respondents are using the “Earn Back” incentive method in 2016, as shown
in Figure 11. The earn-back approach, which is generally unpopular with agencies, might be another
factor in the declining use of performance incentives.
FIGURE 11 Performance incentive basis from the past three surveys.
2013 20162010
Bonus is all “earn back”; agency
base revenue lowered and can be
earned back through performance
“Risk-reward” structure;
some agency revenue at risk in
exchange for upside reward
Bonus is all “upside,” above and
beyond the agency’s base revenue
6%
21%
65%
8%
36%
56%
27%
30%
42%
A large majority of the companies (73 percent)
that use agency incentive programs provide
different tiers of incentive rewards for different
levels of agency performance. One of the
issues with using performance incentives is that
marketers and agencies often perceive them
differently, as Intel’s Keshmiry notes: “I love
The Basis for Performance Incentives
An increasing number of respondents are using the “Earn Back” incentive method in 2016, as shown
in Figure 11. The earn-back approach, which is generally unpopular with agencies, might be another
factor in the declining use of performance incentives.
FIGURE 11 Performance incentive basis from the past three surveys.
2013 20162010
Bonus is all “earn back”; agency
base revenue lowered and can be
earned back through performance
“Risk-reward” structure;
some agency revenue at risk in
exchange for upside reward
Bonus is all “upside,” above and
beyond the agency’s base revenue
6%
21%
65%
8%
36%
56%
27%
30%
42%
A large majority of the companies (73 percent)
that use agency incentive programs provide
different tiers of incentive rewards for different
levels of agency performance. One of the
issues with using performance incentives is that
marketers and agencies often perceive them
differently, as Intel’s Keshmiry notes: “I love
5© Copyright 2017 by the Association of National Advertisers, Inc. All rights reserved.

6. 2Establish Transparency Accountability
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7. At a minimum, marketers need to ensure that there are contract terms
around agency cost/revenue transparency and rebates and discounts
related to agency media income. This facilitates more trust and
eliminates much of the potential for any surprises or wrongdoing.
7© Copyright 2017 by the Association of National Advertisers, Inc. All rights reserved.

8. 23 Trends in Agency Compensation | 17th
edition
FIGURE 17 Effect of the ANA Media Transparency report.
Have you reviewed and discussed
the ANA/K2 Media Transparency
Reporth with senior management?
Has the practice of addressing
agency rebates and bonuses
changed within your organization
based on the release of the ANA/K2
Media Transparency Report?
Yes - 75%
Yes - 45%
No - 27%
No - 55%
by investigative consulting firm K2
Intelligence that alleged widespread, if
entirely unidentified, cash rebates, side
deals, and other ‘nontransparent’ prac-
tices, particularly in digital marketing.”
Here’s a quick look at how marketers have responded to the ANA/K2 Intelligence
Media Transparency Report:
8© Copyright 2017 by the Association of National Advertisers, Inc. All rights reserved.

9. 3Align Compensation to Business Goals
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10. There is not a one-size-fits-all approach to agency compensation, and
marketers need to adjust their compensation methods based on
agency type. However, one thing agency compensation should always
be tied to is your own business goals. After all, if the agency isn’t
helping you to ultimately achieve business goals, it’s not doing its job.
10© Copyright 2017 by the Association of National Advertisers, Inc. All rights reserved.

11. FIGURE 23 Reasons for changing compensation approach.
Desire to more tightly align agency compensation with
business and / or performance criteria
Unsatisfactory agency product / service performance
Agency staffing / personnel issues
Need to cut agency compensation budget
Unsatisfactory business performance
ANA Media Transparency Report
Other (please specify)
Recognition of improved agency performance
Change in our internal management direction
18%
16%
12%
10%
10%
8%
6%
6%
12%
Figure 23 summarizes the reasons respondents provided for changing their agency compensation approach.
Poor agency performance heads the list of The standard, ideally, is fairness, as Keshmiry of
Note in the graph below that 16 percent of survey respondents who have changed
their compensation approach have done so because of a desire to align compensation
to business/performance criteria, the second most frequently occurring response:
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12. 4Conduct Timely Reviews Using
Mutually Understood Criteria
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13. Now more than ever, it is crucial for marketers to first establish with
their agency partners the criteria upon which they will be reviewed
and then to conduct regular reviews looking back to these criteria.
This ensures clarity, the bedrock of any great client/agency relationship.
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14. One ANA member surveyed described a quarterly business review that evaluates
how brands are performing, how budgets are doing, financial outcomes, and
how well communication is occurring. We view this as an ideal model for
agency performance reviews.
14© Copyright 2017 by the Association of National Advertisers, Inc. All rights reserved.

15. Want to know more about how marketers are
compensating their agencies? Check out our
Agency Compensation Solutions Set.