Bringing Common Sense to a Complex Issue

NEW YORK -- After a year of work, an agency/client task force today issued a set of principles for agency-client compensation agreements. But the document offers only general guidelines for what is a complex and often prickly issue.

While the principles smack of common sense, "common sense is not commonly practiced," argued task force member Bill Nicholson, evp at the American Association of Advertising Agencies. The Guidelines for Effective Advertiser/Agency Compensation Agreements were devised by a joint task force of the Association of National Advertisers and the 4A's, and included executives from Ogilvy & Mather, TBWA\ Chiat\Day, General Motors and Procter & Gamble.

The task force was born out of frustration over how complicated and time-consuming compensation agreements have become, Nicholson said. The document recommends a detailed scope of work with "measurable, appropriate goals" and periodic reviews of staffing and performance. It advises that agreements be "simple and clear" and forged before work begins.

Such general rules fail to address core issues, such as how to measure the effectiveness of a service-oriented, creative business, said one consultant who provides compensation services. "Everybody wants an equitable compensation agreement, but what they consider equitable is different," said Linda Fidelman of ADvice & ADvisors in New York. "Most accounts you can't do on strictly business measurements, because it's more than advertising [that drives sales]. That's the quandary."

The guidelines will help less seasoned clients "understand what best practices are," said Peggy Mitchell-King of Morgan Anderson Consulting in New York. "But the best clients have been operating this way for a while. So this is perhaps a codification of the reality of how the industry has changed."

The document includes best and worst practices for different types of compensation, such as fee-based or incentive models. For example, if a "cost-plus" or hourly billing fee is used, "providing only one-way fee adjustments is egregious."