Compensation At The 4A’s

Several provocative notes on the issue of agency compensation were sounded last week at the American Association of Advertising Agencies’ annual conference.
Following a speech by WPP chief Martin Sorrell last Thursday, which criticized agencies for allowing organizations such as management consultancies to infringe upon their turf, clients chimed in Friday on the possibility of reconfiguring agency compensation schemes.
In a panel that included Bob Wehling, a senior vice president at Procter & Gamble; Pepsi-Cola marketing executive Dawn Hudson; and Patrick McGinnis, chief executive of Ralston Purina, Wehling raised the idea of creating “a win-win situation” for both client and agencies, implying he believed P&G’s current commission system could be improved. Without using concrete terms, Wehling said any scheme would be implemented on a broad basis rather than brand by brand.
Despite recent rumblings that P&G is cutting its pay to agencies, Wehling’s words were taken as a hopeful sign by delegates here: Earlier in the week, agency heads had bemoaned thin margins during a time of increased client budgets.
The 4A’s chief executive, O. Burtch Drake, characterized compensation as a vicious circle: “Clients and search consultants pressure agencies for reduced compensation, the agency cuts costs to preserve margins, service suffers,” said Drake.
Sorrell, however, blamed agencies’ “marketing myopia.” He said that agencies, behaving like vendors and not strategic partners, have not communicated their capabilities clearly to clients, and have thus left themselves vulnerable.
Sorrell also predicted advertisers would continue to seek a variety of creative resources, as Coca-Cola has with its many shops.