4A’s Issues New Guidelines For Compensation Talks

The 4A’s is trying to assist its agency members in tackling two long-term industry trouble spots: how to assess the viability of potential business, and receive fair compensation for ideas.

To help address the former issue, the 4A’s last week updated its 2002 business guidelines to include a “marketer’s” questionnaire that agencies and consultants can use early in the review process.

Among other things, the questionnaire recommends an upfront discussion about fees, said 4A’s new-business committee co-chairman Cleve Langdon. “An agency can be totally enamored by a $100 million account,” he explained, “but then find out revenue is only $5 million, usually well into the process.”

Or, as BBDO’s chief marketing officer and 4A’s new-business committee member Mark Goldstein put it: “What’s the first conversation a hooker has with a prospective john? After price is agreed on, it’s all fun and games.”

The questionnaire is designed to encourage agencies to raise the compensation issue early in account reviews, and to ask about the scope of work and level of service a client expects, as well as its compensation history and processes for approving strategy and creative.

It also suggests agencies discuss with a client how it defines and measures an agency’s success.

These are seemingly common-sense questions, but there are 4A’s members of varying size and sophistication who “didn’t know it was in their purview to ask these kinds of direct questions,” said Michael Jeary, co-chairman of the group’s new-business committee.

“Even before this document was devised, strong agencies asked these questions,” said New York search consultant Joanne Davis, who is writing a 4A’s booklet for marketers called Best Practices and Processes for Finding an Agency.

The 4A’s updated the guidelines because members were increasingly frustrated about short-term client relationships, said Tom Finneran, the 4A’s evp of agency services.

The trade organization has also been conducting ongoing sessions on methods of compensation, most recently at an Oct. 27 meeting in which some agencies discussed ways to protect intellectual property and receive residuals on ideas.

With the death of the 15 percent commission years ago, a fee-based system based on staff hours is the norm. But agencies want to be paid not just for their time, but for their ideas.

An idea “is worth the same to a client, whether someone came up with [it] in the shower or during many hours in the office,” said an executive who attended the session.

No new models were developed, but hearing agency peers talk about some of their successes at negotiating fees not based on hourly staff wages was “an attempt to try to inspire [agency] people to have some backbone” about getting paid for their ideas, the source added. “It’s an ongoing struggle. This can provide a better structured, honest and forthright process.”