Some Historical Perspective
Since our firm was founded in 1991, we have seen a steadily growing interest in incentive compensation arrangements among our clients. This is consistent with the A.N.A.'s (Association of National Advertisers) triennial surveys.
While incentive usage has trailed the widespread shift to fee usage, still 42 out of 112 (38%) advertisers responding to the 2003 A.N.A. Survey reported having some sort of incentive criteria in, one or more, of their agency compensation agreements.

As expected, incentive usage increases with advertising expenditure levels. Among the sub-sample of the 48 A.N.A. survey respondents that reported spending $100mm or more in 2003, 56% of these companies (27) utilized some sort of incentive factor.

Many advertiseres use more than one criterion for determining incentive payments to their agencies; but the #1 overall was "Performance Reviews", used by 83% of the repondents, and ranked #1 by 28%. Sales Achievement was the #1 criteria for another 28% of the sample.

The most objective measure of an agency's effectiveness -- changes in Brand Perceptions and/or Brand Awareness -- were both frequently considered, but were seldom the top criterion.

When structuring a performance related incentive program for an Agency, here are three points to keep in mind:

  1. set and agree on the goals jointly;
  2. those goals should be attainable, meaningful and--preferably--objectively measurable;
  3. the primary goal should be based on some sort of advertising induced effect.
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Our firm recently published a Paper on "Incentive Compensation." It includes information about the issues that must be overcome as well as examples of how to set the criteria. You may download a copy here.
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McBride & Associates