November 09, 2002

The American Association of Advertising Agencies and the Association of National Advertisers, Inc., released a joint position paper outlining for the first time ever a set of guidelines covering compensation agreements between agencies and advertisers.

The position paper, entitled Guidelines for Effective Advertiser/Agency Compensation Agreements, is divided into two sections: "Guiding Principles" and "Best and Worst Practices." It was produced over the past year by a joint ANA/AAAA task force formed in 2001.

"This is a landmark development that will help both sides of the equation for years to come" said O. Burtch Drake, AAAA president-CEO. "Never before have the two national advertising trade associations representing opposite sides of a compensation negotiation set forth on paper just how such sensitive issues should be handled."

"This very important document will help make what is often one of the most delicate and difficult parts of the agency/advertiser relationship considerably smoother," said ANA President-CEO John J. Sarsen, Jr. "Task force members from the ANA and the AAAA spent an enormous amount of time one this and are to be commended for their efforts."

The "Guiding Principles" establish a dozen points that the joint task force agreed are found in the most effective compensation agreements. Among others, the guidelines state that the best compensation programs:

Align advertiser and agency interests and priorities

Match compensation with the resources required to do the work

Establish agreement on key compensation definitions and terms up front

Do not favor one solution/service over another

Are finalized before agency resources are committed.

The "Best & Worst Practices" section of the position paper provides a wide selection of principles covering
the gamut of current compensation agreements. These include fees (fixed, hourly and cost-plus); commission agreements; and incentive compensation deals.

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