How the Coronavirus is changing remuneration

Our summary of how our sector is responding to the need for movement on remuneration.

We have been trying to understand how agencies and their clients are managing their remuneration deals during these difficult times. The responses we have had from various members have shown that there has generally been a flexible and, for the most part, reasonable adaptation of existing terms. Here is our summary of how our sector is responding to the need for movement in this sensitive area.

The principal ask from clients is, of course, for some sort of reduction in the amounts to be paid to agencies this year, including:

  • deferring retainer payments
  • rephasing retainers to push out cashflows
  • requesting later automatic rate increases
  • shuffling away from or reframing bonus arrangements

At the same time, clients are not keen to acknowledge costs incurred as a result of their reduced activity e.g. strategy costs on long-planned campaigns now being unwound for which commission payments were anticipated.

Similarly, cancelled campaigns result in additional administration costs and they play havoc with pricing commitments given to a client when the media volumes are reducing. We are going to be asking ISBA to make sure clients are mindful of these points.

When contemplating concessions, agencies can at the same time be thinking of lengthening and deepening their relationships, and their commercial livelihoods.

Clearer future relationships

  • Opening up of planning and budget horizons beyond the pre-Covid arrangements.
  • Guaranteeing exclusivity to the incumbent agency for the duration of the contract.
  • Confirming that potential bonuses for performance will be paid out i.e. they become fixed obligations, usually falling in 2021.
  • Agreeing to waive options to media audits.
  • Agreeing now automatic uplift in rates in out-years.

Longer future relationships

  • Compensating for any a pause period with a comparable extension to the contract that is in place.
  • Adding additional year(s) to the contract.
  • Providing free services, particularly tonal and strategic now, but keeping a careful track of them so that they can form part of future relationship and remuneration review discussions.

Additional flexibility/upside

  • Relaxing conflict of interest clauses to allow the agency to take on more business in the client’s sector.

Relaxing key person clauses

  • Moving work and people between retainer scope and projects in a way that meets the clients more immediate needs, e.g. more digital, but also suits the agency’s rostering and margins.
  • Introducing additional elements of performance pay, sharing in cashflow success only if, and at the same time as, the client feels the benefits.
  • Agreeing concessions on media pricing where media spend volumes are reducing or there are changes in client spend or the media mix.

Expanding role for the agency

  • Expanding scopes. either immediately or in the future triggered by specified circumstances, to include services and competences provided by the agency but not currently taken by the client.
  • Making those rights to provide additional services exclusive.

Expanding role for the group (where applicable)

  • Being granted the right to introduce, and have the client reasonably to consider, other group companies which provide complementary marketing or other services.

If you would like help with any conversations on remuneration you are having with clients please email IPA Finance Director David Clasen.

Last updated 02 June 2020