Labor-based fees remain the dominant form of ad agency compensation, but marketers are using fixed, or output-based fees with increasing frequency, according to a new ANA study.

The report, Trends in Agency Compensation, is the 18^th edition of the research.  It revealed that 82 percent of survey respondents indicated they now use fee-based compensation models compared to 68 percent in 2016, the last time a full survey was conducted. (Note: a separate study was conducted in 2019, but only covered media agencies).

The trend was particularly prevalent among large advertisers.  Among those, 53 percent of marketers spending $500 million or more per year now employ fixed or output-based fees, up from only five percent in 2016.  Smaller advertisers are much more likely to use labor-based fee compensation agreements (76 percent).

In a fixed, output-based fee compensation method, the fee is negotiated for a specific project or set of deliverables without regard to the agency labor time involved.

“One likely reason for a switch from labor-based to fixed or output-based fees relates to greater administrative efficiency,” the report stated.  “Because the fees are based on outputs, there is no review or haggling over agency labor time. A second reason is more philosophic and may relate to marketers who want to compensate the agency for what they produce, not the time it takes to produce it.”

The survey also revealed that the use of performance incentives as a complement to fees is under scrutiny more than ever, as most marketers said they “don’t know” whether performance compensation is improving their agency’s performance. Use of performance incentives dropped to 41 percent in the new report, down from 48 percent in 2016 and 61 percent in 2013.