The Three Dimensions of Agency Compensation
All Agency Compensation schemes are designed around two directionally dependent variables: media spending and agency labor costs. A third variable, in an increasing number of agreements, is a performance or incentive based component. The latter is a completely independent variable, and can be easily applied to any compensation scheme. Nonetheless, how it's applied will influence the equitableness of the agreement, thus it can be either an incentive or a disincentive to improved agency commitment and performance.
 The diagram below shows how the three dimensions of Agency Compensation interact, and how each one affects the attributes of equitableness, complexity and objectivity.


Although media spending based agreements are the least complex and the easiest to administer, they are also the most likely to result in either over or under payment. In contrast a Payroll Cost Multiplier agreement will result in the most equitable compensation, but it will also require the most maintenance and attention from both parties. Special incentives can be overlaid on any agreement.
In the ideal agreement there must be a good balance among acceptable complexity, real equitableness, and perceived objectivity. Because of our familiarity and experience with these issues, a number of leading advertisers have turned to our firm to help them achieve this delicate balance. Reasons to Review Compensation

1. Commissions or fees usually represent a significant part of the budget (e.g. 10% or more);

2. Unexamined spending-based, agreements can become inequitable quickly, since agencies' costs are unrelated to billings;

3. An objective and constructive review should strengthen mutual trust;

4.And because your Agency will always tell you what is not enough, but rarely what is too much
Related Subjects Incentive Compensation

Compensation Trends

Agency Profit Trends

Productivity Audit

 Media Buying Options

Media, Message & Brand
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McBride & Associates