Brent Dewar: Ad agencies that help GM reach its financial goal will be rewarded.
"The baseline is going to change," says Brent Dewar, GM vice president of North American marketing and advertising. "Performance clauses will be much more tied to our (profit) and how successful we are. Are we driving retail sales in the marketplace?"
Dewar says he and other GM executives plan to meet in the next few weeks with officials of the eight ad agencies that handle GM accounts.
GM expects to make a final decision on its new agency compensation formula within two months, Dewar adds.
In the late 1990s, GM shifted the way it paid its ad agencies from a program based on commissions to one that combined fees with performance bonuses. The fees covered an agency's cost of servicing a GM account. The bonuses were based on several factors, including how well an agency communicated a GM brand's position in the marketplace.
GM's ad agency compensation contract needs to place a higher priority on sales and profits, Dewar says. Agencies that help GM advance those goals will earn more, he adds.
'Up for grabs'
"How can we provide bonus clauses if we're not successful?" Dewar asks. "Everything is up for grabs. The whole game has changed."
Adds Mark LaNeve, GM's vice president of North American vehicle sales, service and marketing: "Retail sales is the measure that drives our success now."
GM's ad agencies responded cautiously to Dewar's remarks. Mark Benner, a spokesman for Campbell-Ewald of Warren, Mich., which has the Chevrolet account, says the agency does not comment on compensation issues.
LaNeve says GM is increasing its U.S. advertising budget significantly this year, mostly for vehicle launches. He says outside estimates of a 10 percent increase over last year's ad spending "sound fair." GM spent nearly $2.51 billion to advertise in U.S. media in 2004, according TNS Media Intelligence.
Experts on ad agency compensation say GM's new plan must include incentives for agencies to do their best work. It also must not punish the agencies for factors beyond their control, the analysts say.
"If they are given a really bad product to sell, it could penalize" the agencies, says Jack McBride, managing director of McBride and Associaties. The Modesto, Calif., company helps companies draft ad agency compensation agreements.
"Another huge factor is how much GM spends on sales incentives," McBride says. "That is going to affect both sales and profits."
Cuts both ways
As many as one-half of large U.S. advertisers have compensation plans that take into account the performance of the company as well as the performance of its advertising agencies, says Thomas Finneran, an executive vice president of the American Association of Advertising Agencies in New York.
"The way that the agency is compensated is not going to get at the root cause of a long-term business problem," Finneran says. "If compensation is tied to performance, the agency has to have an ability to affect performance."
The compensation plan is the third major marketing shift affecting GM's ad agencies this year.
In May, the automaker fired its media-buying unit, GM Mediaworks, a division of Interpublic Group of Companies. GM hired Starcom MediaVest, a division of Publicis Groupe, to take over media buying. Starcom already handles GM's media planning account through its GM Planworks unit.
At the same time, the automaker is pushing its brands to be more tightly focused. LaNeve says middle-tier GM brands such as Pontiac and Buick will have fewer models to reduce overlap with other GM brands.
As a consequence, Dewar says, GM also is changing is media strategy. Instead of buying large chunks of advertising time and space and parceling them out to its eight brands, he says, GM is developing customized media plans for each brand.
Jamie LaReau contributed to this report