Kellogg Adopting Incentive Plan

Agencies to Work Under New Compensation Arrangement in 1999
CHICAGO–While top Kellogg executives were telling securities analysts last week to expect accelerated new product introductions in 1999, the company has been telling its roster shops to expect a new compensation arrangement.
According to sources, Kellogg has told its agencies that it intends to change how it pays them–and move from a flat-fee basis to a base-fee-plus-incentive arrangement, with those incentives tied to sales growth objectives. The arrangement will likely be put in place in the U.S. early in 1999, then extended to the rest of North America and finally enacted globally by the middle of next year, sources said.
A representative at Battle Creek, Mich.-based Kellogg said it was company policy not to discuss its compensation arrangements.
The company’s main global agencies are Leo Burnett in Chicago and J. Walter Thompson in New York. It also works with Young & Rubicam, New York (which handles the new, multiproduct Ensemble functional foods line); ethnic marketing agency Burrell Communications Group in Chicago; and The Martin Agency in Richmond, Va.
Kellogg spent $400 million on advertising in 1997, and $270 million through the first nine months of 1998, according to Competitive Media Reporting.
Several major advertisers have moved to base-plus-incentive compensation, including most recently Ford Motor Co. [Adweek, Sept. 14]. One agency executive said his experience with incentive-based compensation is that “at best, you get back to equal [with previous compensation levels], but most likely your net compensation is lowered.”
The compensation shift is a continuation of Kellogg’s re-evaluation, begun in September, of all facets of its advertising–a process that has also resulted in its adding Martin to its agency roster.
Martin’s first assignment will be to create advertising touting a new program called K-Sentials, under which Kellogg will refortify certain existing cereals.
How well Martin handles that first project could determine whether Kellogg embarks next year on a realignment of cereal and convenience foods brand assignments among Martin, JWT, Burnett and possibly Y&R, sources said.
Kellogg also announced plans to launch in 1999 a new line of premium-priced cereals called Country Inn Specialties. JWT will handle advertising for that brand.