What results from the current payment formula, adds Mr. Wethey, isn't just illogical, "it's actually counterproductive." His criticism adds to the growing chorus of scrutiny over compensation agreements as marketers become more focused on cost-effectiveness, and corporate billing scandals create apprehension among clients.

Mr. Wethey's recommendation for long-term agency relationships is that agencies should get either a percentage of the client's sales or a percentage of the client's marketing budget. If the sales or budget increase, so does the agency's compensation. That way, he believes, the agency's payment is based on what its work achieves. Mr. Wethey is founder and chairman of consultancy Agency Assessments International.

At least one major advertiser subscribes to this theory -- Procter & Gamble, whose move to entirely sales-based compensation four years ago provided a model for Mr. Wethey's ideas.

"The better we build our brands with them, the better both of us do," says a P&G spokeswoman. P&G's system attracted attention but hasn't become standard practice in the industry.

Some critics say basing compensation entirely on the client's results can be unfair to the agency. "Advertising remains a tough area to directly measure in terms of how much role is the agency's involvement," says David Beals, owner and president of Jones Lundin Beals, a Chicago consulting firm whose clients include the U.S. Army and Verizon. "There are a lot of other factors outside the agency's control."

A broader compensation crunch is under way in the industry. Marketers are beginning to spend more on advertising as they emerge from the recession, but they aren't necessarily increasing the fees they pay to individual agencies. Instead, more companies are getting their procurement departments involved in ad-agency contract negotiations, rather than leaving it up to the marketing departments alone. When ad-agency groups talk about recovery, it's often because they see an increase in the number of projects and campaigns for which marketers hire them, rather than an increase in fees from individual accounts.

Historically, ad agencies were paid a percentage of what marketers spent on buying media time. But the system was eroded as marketers worried these arrangements made agencies favor expensive media such as television, and as media-buying agencies split from creative agencies. Today, most companies have developed a system in which marketers pay a fee to agencies based on such factors as the amount of time and staffers the agency agrees to devote to the client. Consultants estimate that by now, about 40% of marketers in the U.S. and the United Kingdom also include a portion of compensation that varies according to how well the campaign does, gauged by a variety of measures.

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