1999•Journal of AdvertisingRequires access

Advertising Agency Compensation: An Agency Theory Explanation

Deborah F. Spake, Giles D’Souza, Tammy Neal Crutchfield, Robert M. Morgan

Abstract

Advertising agency compensation may change dramatically in coming years as advertisers put pressure on agencies to reduce commissions and tie compensation to performance resulting from advertising campaigns. Drawing on agency theory from the economics discipline, the authors develop and test several hypotheses to address the advertising agency compensation decision. Their study provides the first comprehensive look at the prevalence of outcome-based compensation tied to performance and other compensation systems currently used among U.S. advertisers.

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Key concepts: Agency (philosophy), Compensation (psychology), Advertising, Principal–agent problem, Test (biology), Business, Outcome (game theory), Compensation methods