GM Drives a Hard Bargain

After several months of negotiations, General Motors and its agencies have signed compensation agreements that sources said lean more heavily on incentive pay and reduce fees.

Sources said GM pushed agencies to cut fees—by as much as 10 percent, according to one estimate—during the talks that led to the 2002 contracts. How much agency fees were ultimately reduced could not be determined. The new pacts are also expected to reflect a change in the way GM determines the incentive-driven portion of agencies’ fees, sources said.

The annual compensation review this year “was just particularly difficult because of the economy, and there’s extra scrutiny there,” said one source.

A GM representative confirmed that 2002 contracts were “just completed,” but declined to elaborate, saying only that talks centered on ways to reduce costs and to “match compensation to performance.”

“We’re not looking to reduce agency profit,” the representative said.

For the first time, the negotiations were led by Christopher “C.J.” Fra leigh, who joined GM in January as executive director of cor porate adver tising and marketing. Shortly after taking the post, Fraleigh made clear he wanted to emphasize incentive pay.

Fraleigh, who reports to John Middlebrook, vp and general manager, vehicle brand marketing and corporate advertising, assumed some of the responsibilities held by Philip Guarascio, who retired last May. These include corporate marketing and advertising activities, media operations and the GM Card.

Like its competitors, GM is having a tough year, and its marketing outlay reflects that. It spent $3 billion in 2000, and $1.8 billion during the first eight months of the year. That compares with $1.4 billion spent from January to August 2001.

Another factor in the negotiations was GM’s desire to have shops lower overhead expenses, a factor used in calculating overall agency compensation. “Like any client, they want to have some sense of how the agencies are operating at some level,” said one source.

Under the 2001 contracts, agencies are prohibited from making more than an 18 percent profit margin on GM business, sources said, and some may have been forced to lower that number for the upcoming year.

GM’s agencies include Campbell-Ewald; D’Arcy Masius Benton & Bowles; McCann-Erickson; Lowe Lin tas & Partners; Hal Riney & Partners; Modernista!; and Mullen.