Five Reasons Why Agency Remuneration Is Still an Issue
Despite decades of debate, agency remuneration remains one of the most persistent challenges in the advertising and marketing industry. While the marketing ecosystem has transformed – driven by digital platforms, in-housing, data, AI and performance accountability – advertisers and agencies still struggle to agree on how agency services should be paid for. The Observatory International’s thoughts on why marketing agency remuneration is still an issue.
This ongoing tension matters. Fee negotiations are not just time-consuming, they are often corrosive to trust and motivation. When client and agency teams spend disproportionate energy negotiating fees, they are far less likely to collaborate effectively or deliver work that drives real business growth.
Research conducted by Observatory International and the WFA with senior global and regional procurement leaders at the world’s largest advertisers consistently shows that remuneration remains a top relationship issue. Many believe their agency relationships would improve significantly if remuneration models better reflected how value is created in modern marketing.
So why, in a far more sophisticated environment, does agency remuneration continue to be such a problem?
- Poorly defined scopes of work remain the root cause
The most common source of remuneration disputes is still unclear scope of work. Agencies are frequently asked to price services based on incomplete, high-level or aspirational briefs. As marketing becomes more always-on and multi-channel, scope creep has become the norm rather than the exception.
Without clear definitions of deliverables, responsibilities and success metrics, it is impossible to establish fair pricing. Marketers must invest more effort upfront in articulating what they genuinely expect from agency partners – and what sits outside the agreed scope.
- Post-appointment reality quickly erodes trust
A familiar pattern persists across the industry. Agencies win business based on an agreed scope, only to discover after appointment that the workload is materially larger or more complex than anticipated.
When agencies return to renegotiate fees, clients often feel frustrated or misled. Yet without formal mechanisms to manage change, these conversations are inevitable. Procurement teams can play a vital role by supporting fair change-control processes rather than viewing fee revisions as a failure.
- Labour-based fees still misalign incentives
Despite years of criticism, labour-based remuneration remains widely used. Its appeal lies in transparency and predictability, but it fails to link reward to performance. An agency can generate the same revenue regardless of whether its work delivers exceptional results or merely meets baseline expectations.
In response, many advertisers have introduced Payment by Results (PBR) or outcome-based incentives. However, poorly designed PBR schemes which are overly complex, weakly measured or excessively short-term often fail to motivate agencies or recognise genuine value creation.
The challenge is not choosing one model over another, but designing remuneration structures that align effort, reward and impact.
- Cost pressure undermines creative quality
Marketing procurement has evolved significantly, yet agencies often still perceive an excessive focus on cost reduction. When fees are pushed too low, agencies respond rationally by assigning less experienced talent or limiting extra effort.
This creates a cycle of dissatisfaction: marketing teams are frustrated by declining quality, while agencies feel undervalued. Leading organisations recognise that agency remuneration must reflect the level of expertise required to deliver high-quality, effective work. Cost, capacity and capability are inseparable.
- Confusion over the “right” remuneration model
There is no single best agency remuneration model. Fixed fees, retainers, project pricing, PBR and hybrid approaches can all be effective when applied in the right context.
The real issue is alignment. Marketing and procurement must share a common definition of value creation and agree how it should be measured and rewarded. Without this shared understanding, remuneration discussions become reactive and adversarial rather than strategic.
A more effective approach to agency remuneration
While there is no universal solution, evidence consistently shows that well-designed remuneration frameworks can significantly improve agency motivation and output. Effective models are built on clear objectives, credible measurement and balanced risk-sharing, not simply on cost control.
Crucially, agency remuneration should be actively managed throughout the year. Regular dialogue between marketing, procurement and agencies enables issues to be addressed early and reduces the need for disruptive annual renegotiations.
Buying professional services is fundamentally different from buying commodities. It requires judgement, collaboration and an understanding of human motivation. The most successful organisations recognise this and design remuneration models that support long-term partnership rather than short-term savings.
Ultimately, paying agencies well is not about generosity – it is about effectiveness. When remuneration structures are fair, transparent and aligned to value creation, money stops being a source of friction and becomes a catalyst for better work and stronger business outcomes.
For more details of the Observatory International’s agency compensation and remuneration practice please click here, or contact a member of our team.
