Global brands are shifting to paying for outputs, not time
Global brands are shifting towards a mix of output-based payment models, effectively ditching the traditional labour-based remuneration model for their agencies.
That is according to a report from the World Federation of Advertisers (WFA), in partnership with software platform Agency Mania Solutions, which finds that labour-based models have fallen from 54% in 2011 to just 17% today. This includes a significant drop from 33% in 2022, when the most recent prior study was carried out.
In congruence, fixed-fee or output-based models have grown from 20% to 35% over the last 15 years, while labour-plus-performance models have more than doubled, from 9% in 2011 to 23% this year.
The findings are based on responses from representatives of 69 multinational companies, representing six industry sectors and a collective global marketing spend of $147bn.
They come as agencies and brands have widely adopted AI tools to make work more efficient, making time- and labour-based payment models outdated.
“Clients ultimately care about the quality, impact and performance of the work – not how many people or hours were required to produce it,” Laura Forcetti, the WFA’s director of global marketing, sourcing, and marketing services in the Asia Pacific region commented. “AI is accelerating this transition by enabling agencies to complete many activities faster, making time an increasingly weak proxy for value.”
Moving forward, brands are broadly embracing hybrid payment models. 58% of respondents say they expect performance-based fees to see increased use, followed by value-based models (43%) and fixed-fee or output-based approaches (36%).
While brands expect greater use of outcome-linked models in the future, they presently represent a still-small share of agency fees. Between 64% and 80% of respondents acknowledged performance-based remuneration accounts for less than 20% of total agency compensation today, though adoption is highest in media-related disciplines where outcomes are easier to track than in creative and production work.
In contrast, 42% of respondents say they anticipate further reducing labour-plus-performance arrangements, with commission models also likely to face more contraction than growth.
Forcetti added: “The growth of hybrid approaches also shows that no single model suits every discipline or assignment. The future of agency compensation is not paying for effort, it is rewarding valuable work, delivered effectively.”
Advertisers have been seeking to shift payment models for several years. In 2023, a WFA and Mediasense survey found that just one in 10 multinational brands said they believe the current agency model fits their needs, with a quarter calling the current agency model “unfit for purpose”.
A year later, a separate survey by the WFA and Mediasense found that three-quarters of advertisers wanted to change their agency compensation model, with a similar 74% indicating they wanted to better align remuneration with business performance.
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Agency performance not reliant on remuneration
Notably, the study finds that satisfaction with agency performance is not reliant on remuneration.
Instead, survey respondents ranked the three strongest contributors to agency performance as great briefing (5.6 on a scale of 1 to 6), respect and trust (5.2), and high-quality feedback (5.1).
In contrast, financial incentives scored just 3.9.
The report also finds that agency relationships are lasting longer than they did eight years ago, with the average tenures increasing across creative, production, media and paid social accounts.
Paid social in particular shows striking growth, with average tenure more than doubling from two years in 2018 to 4.3 years today, suggesting a more mature market.
Global contracts on the rise, but relationships are becoming strained
Global contracting has risen over time for media, the report finds. Global contracts are now used by two-thirds (67%) of respondents for media planning and three in five (61%) for media buying, compared to around half for various creative contracts, including integrated creative and ad-hoc work.
This difference reflects how media strategies have become more globalised, while creative remains relatively localised and market-specific.
As relationships become more global, faster, and more complex, they have also become harder to manage. More than one-third (36%) of respondents say agency relationship management has become more difficult, compared to just 12% who say it has become easier.
Trust is also a growing issue. While the vast majority (89%) of brands say they get value for money from their agencies, less than half (45%) say they feel they have sufficient transparency into agency costing and profitability.
This comes as industry veterans, including a whistleblower at WPP, have reignited concerns over opaque principal media practices and rebate deals.
The WFA report finds that media rebates are a separate issue for most brands. According to the survey, 63% of brands do not adjust media agency remuneration against volume rebates. Among those that do, the adjustment is modest: one-quarter (25%) say rebates offset less than 10% of agency fees.
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