These are tense times when it comes to the financial relationships between advertisers and their agencies. The impact on broadcast production is clear: long gone are the days when ad agencies were paid a 15-plus per cent markup on the cost of production.

Instead, contracts are agreed to on a straight budget basis. Agency compensation packages, traditionally commission-based, have changed to the point where approximately 50 per cent of deals are now worked out on a fee-based structure according to Tim Love, managing partner, Saatchi & Saatchi, New York - a trend that most agencies and their clients are grappling with these days.

Whether this is a good thing depends on who you talk to" Love says, "It is reasonable if production plans are laid out clearly at the beginning of the year between client and agency. In the past, clients have felt that there was no incentive for agencies to keep production costs down."

Nobody present at the Association of National Advertisers conference on agency relations (held at The Plaza in New York Jan. 30) appeared to have found the proverbial silver bullet where structuring compensation packages is concerned. Yet ad gurus diligently spoke about a realignment of expectations between client and agency.

With a labor-based fee system it is in the agency's best interest to keep budgets in check. In a sense, everyone knows where they stand going into production. Much of the onus is then placed on the agency and its supervisors to make sure that things stay on track during a shoot and through post-production.

Within such a structure, everything from art direction to makeup is included in the budget proposal, which is ultimately approved by the advertiser, not the agency. Overriding clauses are often built into the budget to protect both sides from excessive overages. It is now, more than ever, in the agency's best interest to keep the production line clean, the effects of which are surely to be felt in the commercial production market in both creative and budgetary terms.

But the question for most remains the same. How do you put a price tag on a great idea or on wonderful art direction for that matter? Easy, you start with what the guys with the dough - the clients - are willing to pay.

"The relationship between client and agency is better when the measured [or expected] results are matched," says Love, who hopes for better industry standardization. There are currently no industry-wide standards for compensation based on sales metrics, for example. Yet some advertisers are pushing hard to link agency compensation directly to sales results. As such, companies are pushing agencies into highly performance-based compensation programs.

Take the case of Procter and Gamble who, with over 250 brands and six-plus agencies of record, have tried to tie incentives directly to sales and weave agencies into the fiscal fabric of the company in the hopes of building strong ties.

"From a Procter and Gamble perspective we don't discriminate as much based on agencies hitting the home run," says Todd Robinson, associate director, P&G corporate marketing. "Right now, our model is that any good idea is going to help grow business. We belong to the perhaps 10 per cent of companies that have a performance-based model that ties compensation directly to our sales metrics. If our sales go up then their fees do as well. We believe that good [agency] ideas will help sales."

But outstanding creative campaigns - and the way they are produced - can have a significant impact on an advertiser's long-term ability to achieve its goals. That's why Brad Simmons, VP, media services, Unilever United States, feels that labor-based fees don't necessarily compensate everyone fairly.

"If an ad is crossing market borders," says Simmons, "and has been created in one market and is more successful there, then the producers and agency in that market should get the lion's share of the compensation."

That seems to be the reason why many are talking about performance-based compensation. G. Kelly O'Dea, president of FCB Worldwide, feels that the most avant-garde model for compensation is one with a certain point of guaranteed payment locked in, with a system of rewards and penalties based on performance.

"The result is that there are some creative executional boundaries coming into play. We have fascinating creative but they are linked to business goals. That eliminates a lot of the mindless executions," says O'Dea.

Compensation packages are being refined in a variety of ways. While no one system seems to be prevailing as the way of the future, one thing is clear: agencies are being made more accountable for their creative. As O'Dea puts it, "It's not about awards."

Agencies and commercial producers alike would be wise to waken to the fact that these days, however, it is increasingly all about the bottom line.

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