Time to enter the real world

Fact: American Express in the U.S. has recently changed from a commission-based agency compensation system to a piecework-based system.Fact: BMW, in review in the u.s., is said to be dropping the commission paid on its $70-million account from 10% to between...

Fact: American Express in the U.S. has recently changed from a commission-based agency compensation system to a piecework-based system.

Fact: BMW, in review in the u.s., is said to be dropping the commission paid on its $70-million account from 10% to between 3.5% and 5%.

Unless you happen to have the Maalox account, this is not particularly heartening news if you are an advertising executive.

Fact of the matter

But the simple fact of the matter is that the 15% commission system is dead. Thank God.

What worked at the turn of the century (when the largest budgets were in the area of $2 million), is obviously inappropriate in the current market.

Many clients have come from the agency side and they know its financial structure.

They know what an agency’s costs are, and they know that adapting and placing one or two 30-second commercials a year is not likely to be worth 15% of $10 million.

Our clients are smarter than ever, tougher than ever, and are not in the least bit intimidated by the supposed ‘mystique’ of advertising agencies.

They are squeezing budgets, buying a la carte, and looking elsewhere for solutions to their problems.

Fact: Coke’s long-time ad agency is producing four commercials for them this spring. Michael Ovitz’s talent agency, caa, is producing 20.

What does this have to do with compensation? Everything. Because the issue here is not really compensation. It is value.

What do our clients get for the money they pay us?

Do they get a big reputation, legions of account executives, layers of management, ancillary services, and creative people more concerned with awards than with what is being awarded?

Or are they getting great ads?

I sure hope they are at least getting the former, because if you look at the tv any given night, it becomes pretty obvious that most of them sure as hell are not getting the latter.

Is it any wonder that compensation is being squeezed? Would you pay Cadillac prices for a Pinto? Our client’s customers do not. Why should our clients?

Maybe it is time for ad agencies to enter the marketplace. The real world. Maybe it is time to charge what we really believe our services are worth.

Charge more

Is agency ‘A’ a first-rate agency, with hands-on management, dedicated creative people, and a track record of producing great advertising and building its clients businesses? Fine. Charge more. If I am a client who needs the best, I will pay.

If, on the other hand, I do not need to drag out the big guns, or cannot afford to, maybe I will take a look at agency ‘B.’It is not the greatest in the world, but I am willing to settle for less and save a little money.

(You might find that attitude far-fetched, but just think of all the clients who are currently settling for second best and paying top dollar.)

So who decides what an agency should charge? Why not the marketplace? After all, our clients are forced to deal with those same considerations every day.

When did we suddenly decide that quality need not bear any relationship to price? Did somebody repeal the laws of supply and demand while I was out of the room?

I can hear the screaming

But I can hear the screaming already. We are professionals?

Okay, but so are lawyers, and I can guarantee Ed Greenspan is going to cost you more than that guy in the little storefront office down the street. And if you need Greenspan, and can afford him, you will pay. Gladly.

He is going to charge more because he is worth it. Because he provides value for money.

And if everybody in this business did the same, we would be hearing a lot less about compensation, and seeing more good ads.

Peter Holmes is chairman and creative director of Franklin Dallas in Toronto.