In Ad Age today, TBWA Chairman, Jean Marie Dru, adds his voice to the growing chorus of people that are eager to have a conversation about the future of ad agency compensation. It must change. Ad agencies have paid the price for years of "apparent frivolity," but the model today, in the grip of a procurement process that has one ambition, lowering cost, leads to a dead-end. Notes Jean Marie Dru:
"It has become fashionable for everyone to blame "procurement" for their problems. It's an easy way for others to off-load responsibility. The real decision-making, however, lies with CEOs and marketing directors. They're merely leaving the dirty work to procurement. Procurement execs are often given no other option than to squeeze for more so-called efficiencies, year after year. In doing so, they have created a death spiral, making it impossible to attract and compensate the talents we need to deliver the value-creating ideas our clients demand."
The danger, of course, is that if clients don't become part of the compensation solution ad agencies will proceed with fashioning their own out of the resources available to them. One resource stands-out: media. The money is in the media; but to benefit from that fact agencies will need to be on the receiving, not just the giving, end of media dollars. They will need to be both buyer and seller, which will surely lead to a crisis of objectivity in a business whose purpose, the late Clifford Fitzgerald of Dancer Fitzgerald Sample reportedly use to say, is "to recommend."
In this regard, Mr. Dru makes this observation:
"Back when advertising agencies still bought media space, I used to remind our clients of a forgotten truth. If the agency commission paid was 10% of the total advertising costs, the work produced by this 10% is what gave the value to the 100% invested. It was a good argument to fight against too-heavy revenue reductions. Today agency-fee negotiations and media-rate discussions are separated. By considering these two activities separately, our clients have lost sight of the fact that one actually multiplies the value of the other."
It is a very good place to start the conversation: bring back agency commission.
Before the business disappears behind a smoke screen.