Ford Changes Its Fees

While Ford Motor Co. may be the first of the automakers to completely eliminate commission-based compensation deals with its agencies for the $1 billion it spends annually on advertising, its competitors say they have already achieved the increased use of alternative media Ford is seeking.
The new compensation system–which consists of labor-based fees and performance incentives–was developed to spur Ford’s agencies to take more initiative in using nontraditional marketing approaches, such as the Internet and sponsorships, said David G. Ropes, Ford’s director of corporate advertising and integrated marketing.
The compensation agreement affects J. Walter Thompson, Ogilvy & Mather, Young & Rubicam and W.B. Doner & Co. Ford Motor Media, the JWT subsidiary that handles all media placements in the U.S., went to a labor-based fee arrangement earlier this year. Upon that unit’s creation in April 1997, Ford changed its compensation for its agencies–whose tasks shifted to strictly creative and media planning–to a sliding-scale commission schedule, as opposed to a flat 15 percent of media buying, Ropes said.
Ford ultimately may pay its agencies more under the new system, which takes effect in January, Ropes said. “They’re going to be incentivized for achieving results and success with us,” he said. “If those results are spectacular, then the incentive package allows them to earn incremental money. The combination of the base fee and the incremental money, in terms of profit to the agencies, could surpass historical profits.”
General Motors representative Donna Fontana responded that its agencies have been generating alternative media and promotional projects for over a decade without any change in compensation. GM uses a mix of both commission-based and labor-based arrangements depending on the tasks the agency performs, according to sources.