There's a problem permeating the advertising industry. It has been going on for years. And barely anybody within the agency world wants to admit it even exists.

There's a lack of transparency about what marketers at brands pay agencies and what they actually get for their money.

At the center of the issue are media rebates. Media companies (in TV, newspapers, digital, radio, and so on) pay them to agencies to keep client dollars (in the form of ad buys) rolling in. Even when those dollars may be more efficiently spent elsewhere.

Usually, most client-agency contracts insist that all discounts, rebates, and benefits earned by media spending be returned to the client. But if a TV station returns a discount to a media-buying agency there is no way for the client to know about that payment if the agency does not disclose it.

Agencies have been accused of padding their margins with these payments. Clients haven't bothered to pursue them because it would be complicated and resource-intensive to do so. Critics regard them as bribes or kickbacks. Agencies have defended them as a legitimate way to maintain their profitability and note that if clients felt they were being ripped off they would go elsewhere.

Media rebates are set to become such a big problem this year that Brian Wieser, an analyst at Pivotal Research Group, has downgraded his stock ratings for all of the advertising agency holding companies Pivotal covers — reducing IPG from buy to hold, and WPP, Omnicom, and Publicis Groupe from hold to sell. He advises investors in advertising agency companies to "move to the sidelines" or "exit the sector altogether."

The world's biggest advertising agency holding groups deny there is a problem

The controversy surrounding rebates, kickbacks, and agency transparency is not new. In 2012 the former president and finance director of Posterscope in the US, a unit of European holding company Aegis, pleaded guilty to executing $20 million in accounting fraud. In 2010 News America Marketing paid $500 million to settle an antitrust action in which it was accused of rigging prices in the grocery coupon business. In the same year, Grey Group lost an appeals court ruling that unveiled a questionable rebate scheme in its London and New York offices, that went back decades. Publicis agency Leo Burnett was accused of defrauding the US Army account in 2009. The list goes on.

But rebates reared their head again in March this year at the Association of National Advertisers (ANA) Forum, when former Mediacom CEO Jon Mandel alleged that agency "kickbacks" are still "widespread" and cited them as one of the reasons he left the agency world, AdAge reported.

"Have you ever wondered why fees to agencies have gone down and yet the declared profits to these agencies are up?"Mandel said at the time.

GroupM, the media division of the WPP group that owns Mediacom, denied the allegations, saying: "In the US, rebates or other forms of hidden revenue are not part of GroupM's trading relationships with vendors."

The three biggest advertising agency holding groups — Publicis Groupe, Omnicom, and WPP — reported their quarterly earnings this week. On the earnings calls with analysts, all three were asked about rebates. Here are their responses:

Publicis Groupe CEO Maurice Lévy

As reported by AdAge:

We are not suffering at all from this kickback situation. Most of our clients know exactly what our practices are. They know that we are extremely rigorous and that we are playing by the rules. 

So we are suffering as an industry, because there has been a lot of noise, which has been made by a former Mediacom employee. But when it comes to [Publicis Groupe], we have contracts which are scrupulously respected and which have been audited on a regular basis by our clients. It's mad that there has been so much noise made about somebody who left the industry seven or eight years ago, who probably has no idea what's going on. 

Omnicom CEO John Wren

(Ahead of Wren answering the question, Omnicom Media Group CEO Daryl Simm outlined that its media agencies in the US do not seek kickbacks and that the company has "comprehensive contracts" with clients, which specify "performance requirements" too.)

"I am happy for the question because there has been a lot of innuendo and comments against the industry, and we know how we operate, and have consistently operated. So clearing the air on this is a positive thing."

"One other thing is, we are fully participating, I think, the ANA after having allowed that presentation to occur and there is now, I think, a working group between the ANA [and the 4As (American Association of Advertising Agencies).]

"It was somewhat odd to me that no specific allegation came against anybody, even though that presentation had redacted contracts and other things. So we are little bit confused. We don’t find it helpful. So as quickly as jointly the ANA and the 4As can get to the conclusion the better off we will all going to be."

WPP chief executive Sir Martin Sorrell

Sorrell was the most forthcoming of the three agency holding groups on his company's Q1 earnings call on Thursday. (IPG has yet to report its Q1 earnings.)

He said that trade association the World Federation of Advertisers had invited the heads of the six largest agency holding groups to discuss the issues surrounding transparency and questions from advertisers' procurement departments.

Yet only two of the six turned up. "Myself and one other," Sorrell said, not revealing who the other was.

WPP is the only one of the six agency holding groups that discloses both gross revenues versus revenues net of media trading in its earnings statements. Indeed, this is the reason Pivotal analyst Wieser said WPP is probably most "immunized" against the kickbacks/rebates issue. Sorrell has repeatedly called on his rival companies to break out their revenues in this way.

Sorrell said on the call (referring back to Wieser's initial note, calling agencies out on the issue surrounding media agency fees):

Until we get people who are prepared to put out those numbers — and I think the number to put out is net sales versus the revenue number — if we are looking for transparency this is really important. This is not just about programmatic [advertising,] it's barter ... broking, telesales, data investment management, other people do have some research businesses, including Omnicom. They do not show the different between revenue and net sales.

By the way, the irony of this is that if they showed net sales they would show a different margin, and maybe you wouldn't see a 5% revenue increase evaporate into no margin increase or 10 basis points.

We think this is really important. It wasn't so important when data was the only element of it, it was a stable element and wasn't growing rapidly. [Programmatic spend globally was $800 million in billings and is predicted to be] $1 billion this year.

With programmatic it will be a different story. Michael Roth [IPG CEO], I remind you, he thought 50% of media buying will be programmatic this year. In that case it's material. We are nowhere near that level, and not for many years.

Report calls client/agency relationship "disturbing"

On Thursday, the ANA released the findings of a survey of 129 of its members and 105 agencies about the client/agency relationship. And it doesn't look pretty for the agencies.

While the report found that for the most part client/agency relationships were strong, there were several pockets of dissatisfaction, namely with reference to fees:

• Clients and agencies are not in alignment on the fairness of their compensation arrangements. Agencies have much lower levels of agreement that compensation agreements are fair. Both clients and agencies are lukewarm on the value of performance-based compensation as a motivator of agency performance.
• Clients and agencies have different views on the value procurement adds to client/agency relationships. Only 47% of clients agree that procurement adds value, while just 10% of agencies agree.

In a press release, ANA president and CEO Bob Liodice said: "We are pleased to see that at the core, client/agency relationships are sound. Having that strong foundation is a cause for optimism. However, there are disturbing legacy issues that continue to plague the partnership that have been further complicated by blossoming transparency concerns. The ANA is committed to making tangible improvements and will be working in partnership with the 4As to actively address these issues."

"There's a lot more that's going to come out"

Adam Lutz worked within large agencies in New York before he quit in 2010 to form his own media division, Proove Accountable Media, within DiMassimo Goldstein, where he is now a partner.

The independent company claims to be "fully transparent" and operates no pre-arranged contracts with media owners or data providers. Its client roster includes Calvin Klein, Party Poker, and Tommy Hilfiger.

He told Business Insider: "I got frustrated because clients were not getting the best recommendations, in their best interests, [the agencies were just] fulfilling previously set agreements by the holding companies."

Lutz said agency trading desks frequently mark up their inventory — telling the client the media cost $3 CPM (cost per-thousand impressions) when it actually only cost $2 CPM, for example — and media plans for clients get thrown back because a certain allocation wasn't given (40% to Yahoo, 20% to MSN, 20% to AOL, for example), which is only based on a previous network deal (whereby the agency holding group guarantees a certain level of spend over the course of a contract, usually a year) and not the client's best interests.

He recalled a scenario from his agency days: "I met a great attribution tech startup in San Francisco. They had the coolest technology, better than any attribution modeling I had ever seen. I said 'this will be great for my client. This could be something that drives results and efficiencies.'

"The media division said 'great.' Then when we tried to get this set-up for the client it got stopped by someone senior at [the holding company] who said: 'You can't take this new tech because it's not a [holding company]-approved vendor. We have our own attribution modeling tech.' But it was built 10 years ago. It was totally outdated and a joke ... I said: "I said this is ridiculous, that thing was built 10 years ago, this is new, it's dirt-cheap. But at the end of the day I could not take it to the client. And all of this is why I left the business."

That may have been 10 years ago, but Lutz said the situation hasn't changed today.

Lutz added: "There’s a lot more that’s going to come out, clients are going to start questioning their agencies' practices. But agencies have been doing this for 60 years, they’re very good at covering up, or saying that we do not do that any more."

What next?

As Omnicom's Wren pointed out, no recent, specific allegations have been made. But they might be forthcoming as debate in the industry around rebates rattles on.

Business Insider contacted all the agency holding groups recently downgraded by Pivotal Research Group for comment on Wieser's notion that investors in the sector should "move to the sidelines" or "quit the sector altogether."

Only WPP responded to Business Insider's request for comment, referring us back to the previous statement given to AdAge by GroupM chief digital officer Rob Norman.

As previously mentioned, it will probably take more than one advertiser to speak out: It's a timely and costly exercise to audit your contractors. That becomes even more complicated in the world of programmatic advertising where a single dollar from a client's advertising budget can pass through many different vendors (as the famous LUMAscape illustrates) before reaching a consumer.

Expect to read further stories like these over the coming months. There's nothing to say anybody is breaking the rules, or indeed any laws, but clients are about to apply increasing scrutiny to exactly where their marketing budgets are going, and if media is being bought in their best interests.

As Pivotal's Wieser summarized in his recent research note on Omnicom's earnings: "While we recognize that agency holding companies convey that they are transparent with clients about the topic, our conversations with suppliers and clients convey to us that many clients may not fully understand specific arrangements that are in place between suppliers and agencies. This is ultimately consistent with the views articulated at last month’s ANA conference and echoed by many others in the industry as well. We continue to expect further noise to emerge on this topic over the course of the year."

Business Insider is investigating the client/agency transparency issue. If you would like to provide information, both on-the-record, or anonymously, please contact loreilly@businessinsider.com

SEE ALSO: Analyst advises investors in ad agencies to 'move to the sidelines' or 'exit the sector altogether'

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In true Don Draper style, the list of executive perks for some of adland's top-ranking executives is swanky to say the least.

Private jet travel, big car allowances, "golden coffins," and corporate apartments make up some of the perks of advertising's rich and famous.

We've ranked the top 10 packages from least to most extravagant, using information from company annual reports and SEC documents. Of course that means that some other expenses — such as wining and dining clients in exclusive restaurants — aren't disclosed. But our ranking gives some indication as to which execs get the best perks (on top of their salaries and bonuses) in the business.

Michael Roth, CEO of IPG: $22,952 in perquisites.

For a CEO, Roth has one of the most modest big holding company perks packages on Madison Avenue.

Of his 2014 "perquisites," $20,000 of that went to a charitable matching program, while $2,592 went on his dental plan.

Dennis Hewitt, treasurer at Omnicom: $29,777 in "other compensation."

In 2014 Hewitt received an auto allowance of $7,200 and a medical allowance of $4,000.

Kevin Roberts, executive chairman of Saatchi & Saatchi: The only member of Publicis Groupe's management team to receive considerable benefits.

Roberts received €23,516 in "benefits in kind" in 2014. Publicis Groupe only reports benefits in kind (which are in relation to use of a company-provided vehicle) if they are for a material amount.

However, as we pointed out in 2012, it is likely an even greater sum of money is spent financing Roberts' air travel for his business trips. He also spends around 250 nights a year in fancy international hotels that often cost more than $600 per night.

For decades, the advertising industry has been dominated by three main players — the agency networks: WPP, Omnicom, and Publicis.

However, David Jones, the former CEO of French advertising conglomerate Havas (another of the big players, but outside the top three) thinks the dominance of the old guard may come to an end in as little as 10 years.

He has a motive to say so. Jones resigned from Havas in January last year to form what he calls the "world's first brand tech group," You & Mr Jones.

While he does not describe You & Mr Jones as a direct rival to the likes of his former employer, the company essentially will be competing with ad agencies for business from brand marketers. Jones told Business Insider he wants to eventually help brands "with every single part of the marketing process: creating, producing, distributing, targeting, measuring — all better, faster, and cheaper using technology."

You & Mr Jones has raised $350 million in funding, and has already made investments in crowd-sourcing company Mofilm, content marketing platform Pixlee, and viral news site Mashable.

Jones told Business Insider that clients are "frustrated" with the service they are getting from their ad agencies. It's not just Jones saying this, a qualitative study released earlier this month commissioned by UK advertiser trade body the Institute of Practitioners in Advertisers entitled "Mad Men to Sad Men" found evidence of a "widespread breakdown in between agency and client communications." The report (which will be published on the IPA website later this week) continues: "Many of the conversations were highly charged, expressing frustration and emotion. Both sides tended to point the finger of blame at each other."

Jones thinks there will be a shift away from the traditional agency model.

"[Publicis CEO] Maurice Lévy and [WPP CEO Sir] Martin Sorrell have done amazing jobs in the last 30 years, and they've built phenomenal companies of the time. But I just think that 10 years from now the opportunity is there to build a totally different type of company in this space because the world has changed," Jones said.

"20 years ago, brands ran completely different advertising in different parts of the world. And you needed a different ad agency for each different part — big global brands needed 300 ad agencies, there was no global media agency. And the process of creating and producing that content was an incredibly analog experience. Today it's incredibly digital. Pretty much every brand runs the same work globally, and anything you put on YouTube or Snapchat is global. That whole model of having 120,000 employees is no longer needed," he added.

Jones admits that companies like WPP and Publicis could just pivot to offer similar services as You & Mr Jones. But he says it won't be easy with their vast legacy businesses to protect: "Most existing technologies undermine their hours-based legacy model ... even the most advanced of the big holding companies has more than 65% or 70% of their revenue coming from the traditional industries ... and many services they want to sell at a premium because they have that legacy business to protect. The most exciting new companies and tech talent don't want to be sold into large networks — and that's where the old-world standards have a disadvantage."

There has recently been an unprecedented wave of brands calling media agency reviews— some $25 billion in brand ad spending is currently up for grabs. Jones doesn't think all that money will be returned back to the big holding companies.

"Will they keep the same slice of the pie? No, I don't think they will. I think the pie will get split elsewhere. You see it happening with many of the world's biggest advertisers already. What they've cut back on is that wonderful expression they use: 'non-working media'," Jones said.

Evidence of that is already plain to see: Procter & Gamble, the biggest advertiser in the US, for example, announced in April it is looking to cut $500 million in agency fees.

Jones thinks that gives nimbler organizations like his a leg up. They can charge cheaper rates and don't have the operating costs of bigger businesses.

He added: "If you look at [the networks'] senior management focus, their company life stage, if you're WPP and Publicis, you've done it. You won that race. But there's a new race that's starting, that will finish in 10 years. It's like when the Olympic gold medal winner runs a couple of Olympics and then says 'I am retiring.' Someone will win the next Olympics."

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Global ad spend in 2014 rose 3.9% to $513 billion, according to GroupM — and ad agency bosses saw their compensation soar last year too.

Like previous years, our ranking of the richest people in advertising is predominantly made up of white men.

One of them is even subject to an SEC investigation into his income.

There's just one woman on the list.

Methodology: Our ranking looked at SEC filings, taking account of total annual 2014 compensation, including salary, stock awards, option awards, and other incentives. That's an obvious flaw because a lot of people on this list hold a lot of their net worth in stock they have accumulated over previous years, and through other assets and investments.

This list is by no means extensive: We chose to look at public companies only. We also only looked at pure-play advertising agencies: Otherwise advertising execs at tech companies like Google and Facebook, or brand marketers would surely make the list too. Our rankings also begin with those who earn $2 million and above (there are plenty of execs in advertising who earn over $1 million.)

SEE ALSO: The 20 richest people in ad tech, ranked by income

17. Andrew Bonzani, Interpublic general counsel and secretary

Compensation: $2,295,124

Notes: Bonzani's pay rose 51% year-on-year. The bulk of his pay last year was made up of stock awards and non-equity incentive plan compensation.

16. Kevin Roberts, executive chairman of Saatchi & Saatchi

Compensation: ($2,299,314) €2,083,118

Notes: In addition to his salary, Roberts also received €23,516 in "benefits in kind" in 2014.

15. Lori Senecal, global CEO of Crispin Porter + Bogusky

Compensation: $2,345,781

Notes: Senecal was president and CEO of the MDC Partner Network when she received this total compensation for 2014. She moved over to her new role in March of this year.

Her total compensation included a huge $159,034 automobile allowance.

The former president of Omnicom ad agency RAPP USA, Greg Andersen, has filed a lawsuit against the company's global CEO Alexei Orlov that claims complaints he made about his former boss's "harassment" of employees were a "substantial motivating factor" in the termination of his employment.

The suit, filed on Monday in a Los Angeles court claims Orlov, who became global CEO of RAPP in 2014, "was immediately a destructive force within the company."  (Adweek spotted the lawsuit earlier.)

Read the suit in full here (PDF.)

"He also demonstrated through his comments and actions that he harbored discriminatory animus against women and various racial and ethnic groups," the suit reads.

RAPP sent Business Insider this statement:

RAPP is aware that Greg Andersen has filed a complaint and denies that any unlawful conduct occurred. Mr. Andersen's position with RAPP was eliminated and we are not able to comment further. RAPP has, and enforces, policies prohibiting discrimination and retaliation on the basis of gender, race, age, disability, sexual orientation or any other legally protected status.

What the suit claims

On one occasion, Andersen was told Orlov "pressured" a young female employee who worked on the Pfizer account to obtain Viagra for him directly from the pharmaceutical company, the suit says. Orlov told the women he needed the male potency medicine because "he has a young wife," according to the suit.

The suit also claims Orlov refused the promotion of a female employee to managing director because she was "too pretty" and "no one would take her seriously," or words to that effect.

On another occasion, the suit claims Orlov dismissed a complaint made by Andersen about a "drunk" male employee — who is still with the company — who said loudly and publicly that he believed a female employee "was not wearing underwear." Orlov responded to Andersen's emailed complaint: "I find it hard to fully align all this [. . . ] I do not want to see this man’s demise," the suit claims.

The suit also claims that Orlov told a Jewish employee "he was miserly with money because he was Jewish," according to the suit.

Andersen made "several" complaints against Orlov to the ad agency's global head of human resources, Carolyn Doud, and an in-house attorney at RAPP's parent company Omnicom, the suit says. He also encouraged other staff members to file complaints about Orlov's actions.

When Orlov heard about the complaints, he sent Andersen this text message, according to the suit:

“Greg[,] [a] number of my team have come to me as it relates to conversations you are having around / about me [. . . . ] When do you think I might have the courtesy of a direct call from you?”

Less than a month after receiving the text from Orlov, Andersen returned back from a short vacation and was immediately given notice of his termination, which he believes came about after he made his complaints, the suit claims.

The suit claims it was "well-known that Mr. Orlov was vindictive," referring to a meeting in front of 70 people in Dallas when he allegedly said: "Mess with my brand or my direction and I will break off your finger and shove it up your a--."

Andersen left RAPP after three years at the agency in April, AgencySpy reported.

Andersen is seeking damages related to retaliation in violation of the California Fair Employment and Housing Act (FEHA), discrimination in violation of FEHA, failure to prevent discrimination and retaliation, retaliation in violation of the California Labor Code, and wrongful termination in violation of public policy.

The suit was filed just over two months after another high-profile ad agency discrimination lawsuit was lodged in the US courts. The former global CEO of J. Walter Thompson, Gustavo Martinez, is accused of making "constant racist and sexual slurs" by the company's chief communications officer. Martinez, who has now resigned from JWT, denies the charges. The case continues.

SEE ALSO: Lawsuit alleges top ad agency boss joked about raping colleagues and called black people 'monkeys' — read the full complaint here

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"Bahdabababa. #imlovinit"

That was DDB North America CEO Wendy Clark's jubilant caption on her Instagram photo posted earlier this week to announce the ad agency had won McDonald's creative account after a grueling 18-week pitch process.

When Clark and her team visited McDonald's headquarters in Illinois that Monday, they thought it was simply for another commercial terms discussion.

Far from it. Out came McDonald's US Chief Marketing Officer Deborah Wahl and a man dressed as Ronald McDonald, clutching a bunch of flowers and a bottle of Champagne.

The appointment of DDB — or, technically, of a new, as-yet-unnamed agency with 200 staff members under Clark's remit, which will take input and support from other agencies within the Omnicom network — prompted a fair amount of chatter within the ad industry. And not just because it's a huge account and the deal ends McDonald's 35-year relationship with Leo Burnett.

The new agency's pay is tied into how its work improves McDonald's business performance

McDonald's factored in a rare "pay-for-performance" aspect into the contract, as AdAge first reported.

The fast-food chain had reportedly asked agencies to operate at cost — meaning they would only be compensated for their variable costs, but would be prevented from making a profit from this base pay. Instead, all the agency's profit would come from rewards tied to McDonald's business and brand performance.

Sources told Agency Spy it was one of the reasons the world's largest advertising agency holding group, WPP, balked and bowed out of the review in the spring.

Some people argue this kind of model is a good thing because it incentivizes agencies to create work that has an actual effect on their client's business.

Others say it can be difficult to directly correlate advertising with a brand's performance — as brand campaigns can take years to truly take effect, which could possibly see agencies shift from wanting to produce the big, sexy branding work to more performance-led, direct-response campaigns, which are designed to boost short-term sales.

And all this comes at a time when agency fees are being squeezed more than ever, as big advertisers look to cut costs.

Wahl has denied that the company is asking DDB to work at cost. But Clark confirmed to Business Insider there will be a performance aspect to the agency's compensation, and that she's perfectly happy with it.

She wouldn't go into detail about which data the agency's performance would be measured against, but said it would include both short-term and long-term aspects.

"There is a [key performance indicator] that we have agreed on as part of the process. We would not ever work for a client that didn't thoroughly compensate and remunerate our time," she said. "I would say I think the industry has been talking about, for a long time, is a notion of pay-for-performance and having upside when our ideas and our work builds a client's business."

"We feel positively about the potential to be measured in a way that's more correlated with the impact we will create," she said.

'Cortex' is key

The new agency will be centered on data — literally.

Clark's team pitched McDonald's in the agency's unfinished building in Chicago. The team mapped out on the concrete floor what the agency would look like, as bare lighting hung from the ceiling, and placed a "Cortex" unit at the center of the open-plan space.

The Cortex unit will take in all of McDonald's data — including from its stores, mobile app, and social media conversations about the brand — and blend that with "human behavioral" data and "cultural foresight" from the Omnicom data units Sparks and Honey and Analect.

"A lot is written about the notion that somehow data stands in the way of creativity," Clark said. "I'd say I don't think there is any creative out there that wouldn't agree that a more intelligent brief would yield better work. It's where you input data and intelligence in the process that is the key to unlocking creativity — intelligence upfront and capturing impact on the back end."

'I'm Lovin' It' is here to stay

So what was the brief? Clark can't say — "it's secret stuff."

What she can tell us is that the plan is to build the 13-year-old "I'm Lovin' It" brand platform.

Incidentally, the "I'm Lovin' It" slogan was created by the DDB Network. German agency Heye & Partner came up with the "Ich Liebe Es" slogan in September 2003, and the English element — featuring vocals from Justin Timberlake — rolled out worldwide later that month.

"We feel we are going to be able to translate it into a lot of the plans and initiatives McDonald's has in an interesting, share-worthy, exciting way," Clark said.

McDonald's has made a big point in its recent marketing to repair its junk-food reputation by highlighting its efforts to remove artificial colors, flavors, and preservatives and introduce healthier ingredients.

That hasn't been without its criticism. Earlier this month, for example, Panera Bread's CEO, Ron Shaich, slammed McDonald's for its new "preservative-free" McNuggets commercial. He felt it was misleading because people could "generalize" that the entire menu is free of preservatives.

We asked how Clark's agency plans to tread this tricky balance when it reveals its first work for the brand in January, but she batted off the question.

"I can't talk about that. It's material to McDonald's plans," Clark said.

'McDonald's is for everybody. It's not exclusionary.'

What Clark can talk about is what draws her to the McDonald's brand, which could hint at the advertising vision.

She draws parallels between the McDonald's brand and Coca-Cola, the company she worked at for seven years before joining DDB in late 2015. Clark was one of Coke's top senior execs, working her way up to become its president of sparkling brands and strategic marketing.

McDonald's "is one of the most democratic and inclusive brands in the world," said Clark, who even worked at McDonald's as a shift manager before she embarked on her advertising career.

"McDonald's is for everybody. It's not exclusionary," she said. "It has a broad expanse around the world, availability, value, affordability — you have the ability to have good food at a reasonable price around the corner from you. The brand doesn't distinguish and hold itself just for small groups. That's something I love about the brand. They are very clear on what their brand is, and it's a wonderful thing to have a brand that has that legacy."

As we're chatting, I notice out of the corner of my eye that another of Kanye West's tweets is going viral. Clark and her PR assistant immediately look it up:

Clark clearly isn't the only one with a lot of admiration for the McDonald's brand. But with the chain's most recent quarterly US same-store sales growth falling short of estimates, Clark and her team have a big task in their hands to ensure more Americans start feeling the love for the brand, too.

SEE ALSO: Why one of Coke's star female execs gave it up after 7 years to join an ad agency

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Alexei Orlov, the former global CEO of Omnicom ad agency RAPP who resigned from his post this summer amid a discrimination lawsuit brought against him by the company's former US president, has blogged about his experience.

Orlov resigned in June, a month after RAPP USA president Greg Anderson filed a lawsuit accusing him of "harassment", wrongful termination, and "discriminatory animus against women and various racial and ethnic groups." RAPP's lawyers denied the "outrageous" allegations, saying the accusations about Orlov's behavior were "gross mischaracterizations." The case is not yet closed.

Orlov has been writing about his experience on his website and blog, which was spotted by AgencySpy. The website positions itself as "Thoughts of the life of business and the business of life."

In one September blog entry, titled "Think fast, but respond carefully," Orlov appears to reflect on the lawsuit and his departure from RAPP:

"Some of you who know me well are waiting and have been waiting for me to react to certain things that have happened in my life in the last punishing few months. But I have chosen instead to reflect and at the right moment to respond in a way that is both considered, thoughtful and responsible."

Orlov now serves as an advisor to the global CEO at Omnicom's DAS group of companies. Marco Scognamiglio replaced Orlov as RAPP global chief executive.

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Four of the big five advertising holding companies – Interpublic, Omnicom, Publicis, and WPP– have been subpoenaed by the US Justice Department in a probe into potential price fixing in video advertising production services, The Wall Street Journal reports.

These agencies are under investigation for manipulating the video ad production market. The Justice Department is determining whether these agencies have been involved in bid rigging, influencing independent production companies to raise prices in order to steer contracts to agencies’ in-house production units. The production and postproduction of commercials – which involves services like directing, sound editing, special effects and color correction – is an estimated $5 billion business, says the Wall Street Journal.

This investigation could have dramatic follow-on effects for the advertising industry. The Justice Department attorney leading this investigation, Rebecca Meiklejohn, has convicted ad executives for engaging in uncompetitive practices before, as explained by Business Insider. Further, the DoJ has subpoenaed K2 Intelligence, which released a damning report on nontransparent practices in the advertising industry earlier this year. The report K2’s report alleged that such practices were pervasive in the industry, but focused largely on the transfer of unethical, undisclosed media rebates. There are suggestions that the DoJ could extend its probe into this area too.

Jessica Smith, research analyst at BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on mobile marketing that takes a close look at the different tactics being used today, spanning legacy mobile technologies like SMS to emerging capabilities like beacon-aided location-based marketing. The report also identifies some of the most useful mobile marketing technologies that mobile marketers are putting to good use as parts of larger strategies.

Here are some key takeaways from the report:

• As consumers spend more time on their mobile devices, marketing campaigns are following suit. Mobile ad spend continues to lag mobile time spent, providing an opportunity for creative marketers.
• Marketers should leverage different mobile tactics depending on the size and demographics of the audience they want to reach and the type of message they want to send. With all tactics, marketers need to respect the personal nature of the mobile device and pay attention to the potential for communication overload.
• Mobile messaging — particularly SMS and email — has the broadest reach and highest adoption among mobile users. Messaging apps, relative newcomers but gaining fast in popularity, offer more innovative and engaging outreach options.
• Emerging technology, such as dynamic creative optimization, is breathing new life into mobile browser-based ad campaigns, but marketers should keep an eye on consumer adoption of mobile ad blockers.
• In-app advertising can generate high engagement rates, especially with video. Location-based apps and beacons offer additional data that can enhance targeting capabilities.

In full, the report:

• Identifies the major mobile technologies being used to reach consumers.
• Sizes up the potential reach and potential of each of these mobile technologies.
• Presents an example of a company or brand that has successfully leveraged that mobile technology to reach consumers.
• Assesses the efficacy of each approach.
• Examines the potential pitfalls and other shortcomings of each mobile technology.

To get your copy of this invaluable guide to the world of mobile marketing, choose one of these options:

1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
2. Purchase the report and download it immediately from our research store. >> BUY THE REPORT

The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of how mobile marketing is rapidly evolving.

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Omnicom CEO John Wren downplayed the size of Amazon's advertising business in his company's first quarter earnings call.

This is in contrast to the thoughts of WPP CEO Sir Martin Sorrell, who is already preparing for Amazon's push into advertising and said the online retailer was what kept him up at night.

During WPP's full year earnings call in March, Sorrell said: "The answer to the question, 'What worries you when you go to bed at night and wake up in the morning?' isn't a 3-month-old child. It's Amazon — which is a child but not three months." He also said WPP had already set up an agency in Seattle, Amazon's headquarters, to deal with the online retailer.

Wren said Google's ad business would continue to dominate in the near term, especially in search advertising. A large chunk of Amazon's advertising business comes from sponsored product ads, which places it head to head against Google's search ads.

"It's an important alternative and I would never underestimate over the longer run, what Amazon is capable of doing. If you are looking at 2017 or the more immediate future I'd only list it as an important alternative to Google, and that's who I anticipate is going to take most of the market share in the short run," Wren said on the earnings call.

According to investment bank Morgan Stanley, Amazon's advertising business was forecast to grow by 37% between 2016 and 2018 to reach $5 billion in revenue. This still puts it significantly behind Google's search advertising business, which generated $28 billion in revenue in 2017 just in the US, according to an eMarketer report.

Omnicom reported revenue growth of 2.5% to $3.59 billion in the first quarter of 2017. Wren remained cautious about the effects political changes would have on his business in 2017, though:

"While our revenue growth exceeded our internal targets for the quarter, we remained cautious as numerous geopolitical and macroeconomic events remain unresolved," Wren said in reference to upcoming elections in France, Germany, and the UK, the legislative changes in the United States, and the situation in Syria and North Korea.

The agency holding group has been getting a lot of attention from new client gains. Its newly created media agency Hearts & Science won two of the biggest brands, AT&T and Procter & Gamble, as clients and it beat WPP in a pitch for Volkswagen's media buying budget.

SEE ALSO: WPP CEO Sir Martin Sorrell may have played a role in the failed Kraft/Unilever takeover bid

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NOW WATCH: These are the small, agile new aircraft carriers meant to take F-35s into battle

Advertising is still an industry dominated by men. Women hold just 30% of leadership positions in the ad world, according to data from the Institute of Practitioners in Advertising.

Initiatives like The 3% Conference and SheSays have helped to highlight and perhaps partially remedy the problem, but there's still no doubt that women are under-represented.

That's why each year we put out a call for entries for our annual rankings for the most creative women in Adland.

From these nominations, paired with our own research, we selected 30 of the most impressive women in advertising followed by an example of their recent work.

Factors we considered included recognition within the industry, seniority in their respective agencies, size of the shop, and standout creative work that's garnered attention outside of the advertising world.

Our list is by no means complete. But it does feature some of the fiercest talents in the business. Congratulations to everyone who made the list.

30. Margaret Johnson, chief creative officer & partner at Goodby Silverstein & Partners

Margaret Johnson leads the creative department at Goodby Silverstein & Partners. She was named a partner at the agency in 2012 and became the chief creative officer in 2016. At GS&P she has helped turn the agency into one of the industry's most innovative through smart use of new platforms and technology.

Under her leadership, GS&P has brought a humanitarian edge to the work it produces, such as the unacceptable college acceptance letters campaign to combat sexual assault on college campuses and Tostito's "Party Safe" breathalyzer chips bag.

Johnson also serves on the boards of the One Show and Facebook's Creative Council and is a founding member of The 3% Conference. She has won a number of awards and has been part of juries at the ANDYs, CLIOs, and Cannes Lions.

Twitter: @maggiejca

One of the latest campaigns Johnson worked on was a first for Instagram.

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29. Danielle Whalen, EVP/managing director CP+B Boulder

After serving as the EVP and group account director on Applebee's and Fruit of the Loom, Whalen was named MD of the CP+B Boulder. In her time at the agency she's won more than 300 awards, including a Cannes Titanium Grand Prix. 

She's now responsible for driving the agency forward and maintaining the creative standard the CP+B name has become known for.

One of her recent works was bringing back the Captain Obvious character for hotels.com campaigns, and it became one of the main traffic drivers for the website.

Twitter: @danimiami

The head of WPP, the world's largest advertising holding company, said major players in online data management like Nielsen, Facebook, and Google are now the company's main competitors, standing alongside its traditional advertising rivals.

In comments made Wednesday at the American Association of Advertising Agencies' Data Summit, Sir Martin Sorrell said 75% of WPP companies' $18 billion in revenues now comes from digital advertising, data investment management, and media planning.

"We're not a traditional creative business anymore," Sorrell said. "I don't know what the numbers are for our [traditional advertising] competitors, but what I do know is even they have shifted ground."

This of course was not the last thing Sorrell had to say about his competitors, unwilling (or perhaps unable) as he is to refrain from poking fun at the proposed merger of his chief rivals, Publicis Groupe and Omnicom Group.

Sorrell said the combined Publicis Omnicom Group, which would replace WPP as the world's largest advertising services holding company, is silly to think it could compete with Facebook and Google's data troves after arriving so late to the party.

In his mind, the Publicis-Omnicom merger is a failed attempt to catch up to WPP well after it established itself in the targeting and measurement field by purchasing the digital marketing company 24/7 Media in 2007.

“It’s amusing to me that the POG Group is now saying that they can be bigger to compete with them," Sorrell said. "Five minutes ago, they were saying they want to partner with them. They don’t know which way their heads are going to go."

"It’s unrealistic to think you’re going to go against a $300 billion company like Google, or Facebook at $100 billion. And by the way, watch out for China.”

Sorrell said that in order for the advertising holding companies to keep up with their competitors in the online space, they need to continue making investments in technology, as WPP did when it launched the data management platform Xaxis in 2011.

Still, he said, the vast majority of WPP's investments have been in human capital, a worrisome situation in an industry increasingly reliant on technology.

"The lines of difference between us and all those sets of competitors that I mentioned, particularly the ones that are closer, are going to get less and less," Sorrell said. "And that worries me because we're not great data engineers, historically, as an industry. We need to invest more in technology."

SEE ALSO: Our list of the 24 Most Creative People in Advertising

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In the latest piece of evidence that the advertising world once dominated by Mad Men creatives is giving way to one owned by technology and analytics gurus, a social media network in its first day of public trading is now as valuable as the world's largest advertising services holding company.

In a note sent to investors this morning, Pivotal Research Group senior analyst Brian Wieser wrote that at a price of $45 per share, Twitter is worth about $30 billion. That's nearly the same valuation as the $35 billion market capitalization of the combined Publicis Omnicom Group, which will become the biggest advertising company in the world once the proposed merger is cleared by regulators. POG will have combined revenues of $23 billion. Twitter will have annual revenues of somewhere around $600 million this year.

Twitter began trading today at $45.10 and is currently trading at $45.18.

SEE ALSO: Twitter Just Got Downgraded To Sell!

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The $35 billion merger between Omnicom and Publicis Groupe SA has been called off, the Wall Street Journal reports, citing sources.  

The merger, first announced this past July, would have created the world's largest advertising holding company, dethroning current No. 1 WPP.

The two companies confirmed the Wall Street Journal's report in a joint statement shortly afterward, saying that they had released each other from all obligations related to the transaction and that no termination fees will be payable by either party.

The merger's implosion was foreshadowed by recent reports from the Wall Street Journal, which said the two sides were struggling to get the combined company, planned to be based in the Netherlands, registered as a tax resident of the United Kingdom.

Additionally, Omnicom and Publicis were said to be sparring over who would get to be the chief financial officer of the merged company. Omnicom wanted its chief financial officer, Randall Weisenburger, to have the position, while Publicis was pulling for its own CFO, Jean-Michel Etienne. France's Publicis and the United States' Omnicom were also unable to decide which company would legally acquire the other.

"The challenges that still remained to be overcome, in addition to the slow pace of progress, created a level of uncertainty detrimental to the interests of both groups and their employees, clients, and shareholders," Publicis chairman Maurice Lévy and Omnicom CEO John Wren said in a joint statement. "We have thus jointly decided to proceed along our independent paths. We, of course, remain competitors, but maintain a great respect for one another."

Had it been completed, the merger would have brought many of the world's most prominent advertising and public relations agencies under one roof, including Omnicom agencies BBDO, DDB, and Ketchum, and Publicis agencies Saatchi & Saatchi, Leo Burnett, and BBH.

The idea was to provide the combined company with the sort of scale required to maintain leverage against online advertising companies like Facebook and Google, platforms on which Omnicom and Publicis' clients are spending more and more of their budgets these days. By buying ads in greater bulk, Omnicom and Publicis would theoretically be able to fetch lower prices and pass those savings on to their clients.

One person who is sure to be pleased by the news is the highly competitive WPP CEO Sir Martin Sorrell, who is bitter rivals with Publicis' Lévy.

Since the merger's announcement, Sorrell has taken every available opportunity to insult Publicis and Omnicom, attacking them for what he said would be a "clunky" corporate hierarchy on a conference call back in August.

It was then that Sorrell said combining the two companies' corporate colors (Omnicom's orange and Publicis' purple) would create a "sludgy brown" mixture.

Secure in his position as head of the word's largest advertising company, Sorrell told the Financial Times that the deal “seems to have been driven by emotion to knock WPP off its perch and, of course, by French charm."

He added: “In the end, it was a case of eyes bigger than tummy."

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Good morning, AdLand. Here's what you need to know today:

Airbnb is running its first global advertising campaign. Created by its ad agency Pereira & O'Dell and directed by Alma Har'el of Tool, the campaign is anchored by a 60-second ad that seeks to show people that staying with an Airbnb host can make traveling in a foreign country feel more like home.

The ad will run in the U.S, U.K., Germany, France, Singapore, South Korea, Japan, Brazil and China, and on sites like YouTube, BuzzFeed, Twitter, and Facebook.

Omnicom and Publicis' proposed $35 billion merger was not meant to be. The two sides called off the merger last night, citing "difficulties in completing the transaction within a reasonable timeframe." In the weeks leading up to the deal, the companies were said to be having difficulty obtaining tax residency in the U.K. and fighting over who would be chief financial officer of the combined company.

Ad Age has an interview with the victorious Sir Martin Sorrell, the WPP CEO and arch rival of Publicis and Omnicom. Sorrell gloated that the proposed deal was an emotional decision made to knock WPP off its perch, but that Omnicom and Publicis' "eyes were bigger than their tummy."

Snapchatsettled charges brought by the Federal Trade Commission that alleged the startup falsely promised that its messages would disappear after users sent them. The FTC also claimed  Snapchat collected address book information without user consent, and  allowed video messages to be stored and accessed on a recipient's phone. The settlement requires Snapchat to implement an in-depth privacy program and be monitored by a privacy professional for 20 years.

Y&Rappointed Jon Bird global managing director of Labstore, the agency's retail and shopper marketing network. Bird previously co-founded and led Y&R's retail marketing agency, IdeaWorks, in Australia and New Zealand.

E-Trademoved its media planning and buying account to a WPP team made up of talent from OgilvyOne and GroupM. The account was previously held by the Publicis agency Spark.

CP+Bhired Spence Kramer to be its global managing director. Spence was most recently at Wieden+Kennedy, where he ran the Coca-Cola business, and before that, the Nike business.

Interactive audio ad company XAPPMedia hired Lisa Namerow to be its senior vice president of business development and publisher relations. Namerow was most recently senior vice president of strategic partnerships and audio monetization at Slacker Radio.

Previously on Business Insider Advertising:

• Here's How To Learn How Much Your Data Is Worth To Facebook And Google
• Massive Ad Industry Merger Collapses
• Here's Why Engagement Is Becoming An Important Way Of Evaluating Social Networks
• How 'The Decoy Effect' Tricks You Into Ordering Huge Drinks

Join the conversation about this story »

While regulatory approval has been known to halt a merger in its tracks, a $35 billion pending acquisition that could have resulted in the largest advertising agency on the planet has been scrapped for decidedly more personal reasons.

U.S.-based advertising giant Omnicom and its French counterpart Publicis have tossed out a deal announced last July, primarily due to internal cultural clashes and power struggles within the forthcoming entity’s executive suites, Reuters reports.

“Omnicom wanted their people to fill the CEO, CFO and general counsel jobs,” Publicis chief Maurice Levy told the outlet. “I thought that went too far. I was not ready to cede on this point.”

Related: Hear That? Apple May Buy Beats Electronics in $3.2 Billion Mega Deal.

“There are strong corporate cultures in both companies that delayed us reaching an agreement,” Omnicom CEO John Wren explained -- and these delays had resulted in astronomic losses of work, namely more than $1.5 billion in the past month alone.

Approximately 65 percent of mergers falter -- primarily due to lack of corporate blending, says Alan Smith, CEO of the M&A consulting firm Bay Pacific Group.

"The danger time in a corporate culture clash is in the very beginning when employees on both sides feel threatened by the combination," he advises. "By acknowledging its presence early on and educating employees as to its dynamics, people will be better prepared to appreciate differences that may help build a stronger organization in the long run."

Related: Another Mega Merger: AT&T Reportedly Eyeing $40 Billion Purchase of DirecTV

Though the deal would have called for 50-50 ownership and had been initiated to cope with an evolving ad industry increasingly dominated by tech giants like Google and Facebook, both sides ultimately fell prey to a corporate soap opera of sorts.

There were also complications over legal and tax issues -- and also of note was that China’s antitrust regulator, Mofcom, had not granted the deal regulatory approval, notes The New York Times.

As they go their separate ways, both Omnicom and Publicis face no termination fees, but will split the legal bills resulting from the failed transaction.

Related: The $19 Billion WhatsApp Deal Was Big, But Not the Year's Biggest (Infographic)

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Omnicom Group, the world's second largest advertising holding company by revenue, just gave the market another major indication that TV dollars are moving to digital. 

Speaking on the company's third-quarter earnings call Tuesday, Omnicom Group CEO John Wren explained how the rise of programmatic advertising and the increase in quality inventory becoming available online over the past few months has seen a "rapid shift" in the way clients have been booking advertising.

Referencing the move from TV and traditional advertising to digital in particular, Wren said:

"Marketing budgets continue to grow . Clients, though, especially when it comes to TV, there has been, I'd say, a shift. When you look at traditional areas like the upfront and scatter market, if you went back a couple of years there was an urgency on the part of clients to make certain they didn't miss out on the programming they wanted.

"With all the various choices of how to reach the audiences you want to reach today and our ability to do it, there just wasn't that urgency going into the upfront this year. And with respect to the scatter market, I think you are seeing money being diverted into other areas. 

"I believe that trend will continue. I don't think TV is dead, but I just think there is going to be a shift."

The upfront refers to the time of year when TV broadcasters sell all their advertising for their most attractive Fall programming ahead of time. The practice keeps the price of TV advertising high because it creates a short, limited window in which brands feel they need to lock in the best deals they can by buying in bulk.

The scatter market refers to TV advertising sold closer to the broadcast date. It is sometimes referred to as leftover advertising and is often sold at a far higher rate if the TV show pulls in bigger ratings than previously forecast.

Wren called to the move from traditional media buying to digital practices as "the shift from mass marketing to mass personalization."  That shift isn't new advertising money coming into the market. It's TV advertising money (and other traditional advertising money) moving into more-measureable online advertising. That move from one pot to another was also referenced by Omnicom Media Group CEO Daryl Simm earlier this month when he said he was advising clients to shift as much as 25% of their TV budgets to online video.

Meanwhile in recent months Omnicom, which represents more than $50 billion in annual ad spend for clients like Apple and Pepsi, has signed huge global upfront advertising commitments with Instagram, Twitter, and the now Disney-owned YouTube content creator Maker Studios and became the first advertising network to trial Facebook's new Atlas advertising platform. 

All these stories compounded together ought to frighten TV broadcasters. They need to change their approach to selling, optimizing, and measuring advertising if they are to prevent this "shift" from rapidly decaying their businesses.

A shift is happening. But TV isn't at all dead yet.

However, to put this into some perspective, TV advertising is projected by eMarketer to make up 38.1% of total US ad spend in 2014. Digital, meanwhile, is estimated to make up 28.2% of the total advertising outlay.

So even though eMarketer also predicts digital spend will overtake TV spend in 2018, there is still quite a way to go before we stop seeing 30-second ads on our TV sets. It's also worth bearing in mind that broadcasters are also offering digital advertising opportunities across their websites, video-on-demand platforms and apps, which can make up for some of the traditional advertising shortfall.

Omnicom also revealed on the earnings call that programmatic media buying — which makes the buying of media far easier than TV because the process is automated —accounts for just around 2% of the company's revenue. However, with a recent Forrester study forecasting programmatic ad spend across North America will double to $39 billion by 2019, Wren said the company was " rapidly evolving" its business to ensure it had the capability to serve clients in this area. There has been a "meaningful increase in demand" from clients for the company's programmatic services over the last year, he added.

Omnicom Group's third-quarter net revenue rose 7.4% (or 6.5% on a like-for-like basis) to $3.75 billion, while net income increased 24.4% to $243.8 million. The company was boosted by strong advertiser demand in its home US market.

The earnings report came six months after the company's proposed merger with Publicis Groupe to create the world's biggest advertising group collapsed. The company said the pre-tax impact of the abandoned transaction in the year to date was $8.8 million, which was mainly spent on professional fees.

SEE ALSO: The Ad Agency For Apple, Pepsi and McDonald's Is Advising Clients To Slash Millions From Their TV Budgets

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John Wren, the CEO of the second largest advertising agency holding group in the world, Omnicom, received $24 million in compensation in 2014 — the same year as his company's failed $35 billion merger attempt with France-based Publicis Groupe.

Wren's total compensation was up 33% on 2013, according to the company's latest SEC filings.

Wren's base salary was $1 million, but 95% of his compensation is tied into performance. He also receives other personal benefits such including $82,751 for personal use of aircraft, an auto allowance of $9,120, a medical allowance of $4,000, and a "years of service award" of $5,000.

While Wren's take-home might seem high, it is less than half of that of WPP CEO Sir Martin Sorrell's pay package. He is set to receive $53 million in share awards this year, on top of his $1.6 million salary. In 2013, Publicis Groupe's Maurice Lévy earned $6.3 million in total compensation (the company's annual report for 2014 is not yet out.)

Lévy admitted last year that Publicis was the more interested partner in the proposed merger with Omnicom, which may explain why Omnicom — and Wren's pay — were relatively unaffected by the merger's collapse.

Omnicom posted a 5% lift in revenue to $15.3 billion, and a 11.4% rise in net profit to $1.1 billion in the 12 months to December 31.

Publicis Groupe suffered a torrid first nine months of the year but managed to pull it back in the fourth quarter, reporting a 4.3% lift in revenue for the full-year to €7.23 billion ($7.8 billion,) and a 4.7% rise in headline profit to €829 million ($890 million).

SEE ALSO: We spoke to Publicis boss Maurice Lévy about why he’s not buying Dunnhumby, and why he still sends handwritten notes

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NOW WATCH: We did the math: Is Uber really cheaper than a taxi?

Pivotal Research Group analyst Brian Wieser has downgraded his stock ratings for all of the advertising agency holding companies Pivotal covers — reducing IPG from buy to hold, and WPP, Omnicom, and Publicis Groupe from hold to sell. He cites "emerging concerns among marketers" around "mis-leading" payments and different forms of volume discount rebates that agencies claim in the United States.

As a result, Wieser advises investors in such companies to move to the sidelines or "exit the sector altogether."

Media rebates are one of the most controversial areas of advertising, and are not new: Media companies pay them to agencies to keep client dollars — in the form of ad buys — rolling in, even when those dollars may be more efficiently spent elsewhere.

They exist in a legal gray area. Usually, most client-agency contracts insist that all discounts, rebates and benefits earned by media spending be returned to the client. But if a TV station returns a discount to a media-buying agency there is no way for the client to know about that payment if the agency does not disclose it. Historically, agencies have padded their margins with these payments. Clients haven't bothered to pursue them because it would be complicated and resource-intensive to do so. Critics regard them as bribes or kickbacks. Agencies have defended them as a legitimate way to maintain their profitability, and note that if clients felt they were being ripped off they would go elsewhere.

Grey Global Group was once sued unsuccessfully by its former CFO over the issue of whether rebates were legit.

Recently, former Mediacom CEO Jon Mandel alleged that agency "kickbacks" are still "widespread" and cited them as one of the reasons he left the agency world, AdAge reported. "Have you ever wondered why fees to agencies have gone down and yet the declared profits to these agencies are up?" he said at the time. GroupM (the media division of the WPP group, which owns Mediacom) denied the allegations, saying "In the US, rebates or other form so hidden revenue are not part of GroupM's trading relationships with vendors."

Nevertheless, Wieser writes in a research note published on Monday:

The volume and specificity of allegations by aggrieved media owners, former agency executives and marketers are difficult to ignore. Rightly or wrongly, there is a growing perception among marketers that agencies have been mis-leading, transferring value associated with media volumes without clients’ full understanding or support. Between cash rebates, consulting arrangements, vendor-funded staffing or services, inventory banks, equity provided for spending volumes, shifting of inventory from one entity to another and all of the above practices involving volumes in one country shifted in exchange for benefits in another, few marketer-clients in the US fully understand the specific arrangements their agencies undertake with media owners.

Despite its Mediacom business being namechecked in the aforementioned trade magazine reports, Wieser says WPP is probably the most "immunized" holding group in the event that clients decide to do something about the problem.

That's because WPP is the only group to disclose both gross revenues versus revenues net of media trading. Indeed, Sir Martin Sorrell has recently been vocal in both quarterly earnings calls and his appearances at advertising conferences about rival groups not reporting revenues transparently.

Even still, Wieser points out that none of the agency holding groups break out revenue from barter, cash rebates, consulting, media agency research fees, the booking of business from media inventory banks, or trading with equity investees.

Wieser believes that clients' scrutiny of the fees they are being charged by their agencies "will surely expand" as trading practices are explored in greater depth — presumably this means by their own procurement divisions, the press, or trade bodies.

He warns:

All of this may ultimately cause only an imperceptible difference in growth, but as marketers become more vocal about undisclosed rebates and more specific allegations come to light, a drumbeat of negativity will build around the sector over the course of this year. Given this risk, we’d recommend that investors move to the sidelines or exit the sector altogether while it all plays out.

Beyond the rebate issue, the note suggests other risks in the sector include: Squeezing fees from clients, competition from adjacent industries, and reduced competition between marketers and demand for other advertising services.

Here are the specific Pivotal downgrades:

• IPG
• Rating: HOLD (Previous: BUY)
• Target price: $23 (Previous $24)
• Omnicom
• Rating: SELL (Previous: HOLD)
• Target price: $66 (Previous: $71)
• Publicis Groupe
• Rating: SELL (Previous: HOLD)
• Target price:€64 (Previous:€65)
• WPP
• Rating: SELL (Previous: HOLD)
• Target price: 1370p (Previous: 1440p)

SEE ALSO: We spoke to Publicis boss Maurice Levy about why he's not buying Dunnhumby, and why he still sends handwritten notes

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NOW WATCH: This is what happens to your brain and body when you check your phone before bed

There's a problem permeating the advertising industry. It has been going on for years. And barely anybody within the agency world wants to admit it even exists.

There's a lack of transparency about what marketers at brands pay agencies and what they actually get for their money.

At the center of the issue are media rebates. Media companies (in TV, newspapers, digital, radio, and so on) pay them to agencies to keep client dollars (in the form of ad buys) rolling in. Even when those dollars may be more efficiently spent elsewhere.

Usually, most client-agency contracts insist that all discounts, rebates, and benefits earned by media spending be returned to the client. But if a TV station returns a discount to a media-buying agency there is no way for the client to know about that payment if the agency does not disclose it.

Agencies have been accused of padding their margins with these payments. Clients haven't bothered to pursue them because it would be complicated and resource-intensive to do so. Critics regard them as bribes or kickbacks. Agencies have defended them as a legitimate way to maintain their profitability and note that if clients felt they were being ripped off they would go elsewhere.

Media rebates are set to become such a big problem this year that Brian Wieser, an analyst at Pivotal Research Group, has downgraded his stock ratings for all of the advertising agency holding companies Pivotal covers — reducing IPG from buy to hold, and WPP, Omnicom, and Publicis Groupe from hold to sell. He advises investors in advertising agency companies to "move to the sidelines" or "exit the sector altogether."

The world's biggest advertising agency holding groups deny there is a problem

The controversy surrounding rebates, kickbacks, and agency transparency is not new. In 2012 the former president and finance director of Posterscope in the US, a unit of European holding company Aegis, pleaded guilty to executing $20 million in accounting fraud. In 2010 News America Marketing paid $500 million to settle an antitrust action in which it was accused of rigging prices in the grocery coupon business. In the same year, Grey Group lost an appeals court ruling that unveiled a questionable rebate scheme in its London and New York offices, that went back decades. Publicis agency Leo Burnett was accused of defrauding the US Army account in 2009. The list goes on.

But rebates reared their head again in March this year at the Association of National Advertisers (ANA) Forum, when former Mediacom CEO Jon Mandel alleged that agency "kickbacks" are still "widespread" and cited them as one of the reasons he left the agency world, AdAge reported.

"Have you ever wondered why fees to agencies have gone down and yet the declared profits to these agencies are up?" Mandel said at the time.

GroupM, the media division of the WPP group that owns Mediacom, denied the allegations, saying: "In the US, rebates or other forms of hidden revenue are not part of GroupM's trading relationships with vendors."

The three biggest advertising agency holding groups — Publicis Groupe, Omnicom, and WPP — reported their quarterly earnings this week. On the earnings calls with analysts, all three were asked about rebates. Here are their responses:

Publicis Groupe CEO Maurice Lévy

As reported by AdAge:

We are not suffering at all from this kickback situation. Most of our clients know exactly what our practices are. They know that we are extremely rigorous and that we are playing by the rules. 

So we are suffering as an industry, because there has been a lot of noise, which has been made by a former Mediacom employee. But when it comes to [Publicis Groupe], we have contracts which are scrupulously respected and which have been audited on a regular basis by our clients. It's mad that there has been so much noise made about somebody who left the industry seven or eight years ago, who probably has no idea what's going on. 

Omnicom CEO John Wren

(Ahead of Wren answering the question, Omnicom Media Group CEO Daryl Simm outlined that its media agencies in the US do not seek kickbacks and that the company has "comprehensive contracts" with clients, which specify "performance requirements" too.)

"I am happy for the question because there has been a lot of innuendo and comments against the industry, and we know how we operate, and have consistently operated. So clearing the air on this is a positive thing."

"One other thing is, we are fully participating, I think, the ANA after having allowed that presentation to occur and there is now, I think, a working group between the ANA [and the 4As (American Association of Advertising Agencies).]

"It was somewhat odd to me that no specific allegation came against anybody, even though that presentation had redacted contracts and other things. So we are little bit confused. We don’t find it helpful. So as quickly as jointly the ANA and the 4As can get to the conclusion the better off we will all going to be."

WPP chief executive Sir Martin Sorrell

Sorrell was the most forthcoming of the three agency holding groups on his company's Q1 earnings call on Thursday. (IPG has yet to report its Q1 earnings.)

He said that trade association the World Federation of Advertisers had invited the heads of the six largest agency holding groups to discuss the issues surrounding transparency and questions from advertisers' procurement departments.

Yet only two of the six turned up. "Myself and one other," Sorrell said, not revealing who the other was.

WPP is the only one of the six agency holding groups that discloses both gross revenues versus revenues net of media trading in its earnings statements. Indeed, this is the reason Pivotal analyst Wieser said WPP is probably most "immunized" against the kickbacks/rebates issue. Sorrell has repeatedly called on his rival companies to break out their revenues in this way.

Sorrell said on the call (referring back to Wieser's initial note, calling agencies out on the issue surrounding media agency fees):

Until we get people who are prepared to put out those numbers — and I think the number to put out is net sales versus the revenue number — if we are looking for transparency this is really important. This is not just about programmatic [advertising,] it's barter ... broking, telesales, data investment management, other people do have some research businesses, including Omnicom. They do not show the different between revenue and net sales.

By the way, the irony of this is that if they showed net sales they would show a different margin, and maybe you wouldn't see a 5% revenue increase evaporate into no margin increase or 10 basis points.

We think this is really important. It wasn't so important when data was the only element of it, it was a stable element and wasn't growing rapidly. [Programmatic spend globally was $800 million in billings and is predicted to be] $1 billion this year.

With programmatic it will be a different story. Michael Roth [IPG CEO], I remind you, he thought 50% of media buying will be programmatic this year. In that case it's material. We are nowhere near that level, and not for many years.

Report calls client/agency relationship "disturbing"

On Thursday, the ANA released the findings of a survey of 129 of its members and 105 agencies about the client/agency relationship. And it doesn't look pretty for the agencies.

While the report found that for the most part client/agency relationships were strong, there were several pockets of dissatisfaction, namely with reference to fees:

• Clients and agencies are not in alignment on the fairness of their compensation arrangements. Agencies have much lower levels of agreement that compensation agreements are fair. Both clients and agencies are lukewarm on the value of performance-based compensation as a motivator of agency performance.
• Clients and agencies have different views on the value procurement adds to client/agency relationships. Only 47% of clients agree that procurement adds value, while just 10% of agencies agree.

In a press release, ANA president and CEO Bob Liodice said: "We are pleased to see that at the core, client/agency relationships are sound. Having that strong foundation is a cause for optimism. However, there are disturbing legacy issues that continue to plague the partnership that have been further complicated by blossoming transparency concerns. The ANA is committed to making tangible improvements and will be working in partnership with the 4As to actively address these issues."

"There's a lot more that's going to come out"

Adam Lutz worked within large agencies in New York before he quit in 2010 to form his own media division, Proove Accountable Media, within DiMassimo Goldstein, where he is now a partner.

The independent company claims to be "fully transparent" and operates no pre-arranged contracts with media owners or data providers. Its client roster includes Calvin Klein, Party Poker, and Tommy Hilfiger.

He told Business Insider: "I got frustrated because clients were not getting the best recommendations, in their best interests, [the agencies were just] fulfilling previously set agreements by the holding companies."

Lutz said agency trading desks frequently mark up their inventory — telling the client the media cost $3 CPM (cost per-thousand impressions) when it actually only cost $2 CPM, for example — and media plans for clients get thrown back because a certain allocation wasn't given (40% to Yahoo, 20% to MSN, 20% to AOL, for example), which is only based on a previous network deal (whereby the agency holding group guarantees a certain level of spend over the course of a contract, usually a year) and not the client's best interests.

He recalled a scenario from his agency days: "I met a great attribution tech startup in San Francisco. They had the coolest technology, better than any attribution modeling I had ever seen. I said 'this will be great for my client. This could be something that drives results and efficiencies.'

"The media division said 'great.' Then when we tried to get this set-up for the client it got stopped by someone senior at [the holding company] who said: 'You can't take this new tech because it's not a [holding company]-approved vendor. We have our own attribution modeling tech.' But it was built 10 years ago. It was totally outdated and a joke ... I said: "I said this is ridiculous, that thing was built 10 years ago, this is new, it's dirt-cheap. But at the end of the day I could not take it to the client. And all of this is why I left the business."

That may have been 10 years ago, but Lutz said the situation hasn't changed today.

Lutz added: "There’s a lot more that’s going to come out, clients are going to start questioning their agencies' practices. But agencies have been doing this for 60 years, they’re very good at covering up, or saying that we do not do that any more."

What next?

As Omnicom's Wren pointed out, no recent, specific allegations have been made. But they might be forthcoming as debate in the industry around rebates rattles on.

Business Insider contacted all the agency holding groups recently downgraded by Pivotal Research Group for comment on Wieser's notion that investors in the sector should "move to the sidelines" or "quit the sector altogether."

Only WPP responded to Business Insider's request for comment, referring us back to the previous statement given to AdAge by GroupM chief digital officer Rob Norman.

As previously mentioned, it will probably take more than one advertiser to speak out: It's a timely and costly exercise to audit your contractors. That becomes even more complicated in the world of programmatic advertising where a single dollar from a client's advertising budget can pass through many different vendors (as the famous LUMAscape illustrates) before reaching a consumer.

Expect to read further stories like these over the coming months. There's nothing to say anybody is breaking the rules, or indeed any laws, but clients are about to apply increasing scrutiny to exactly where their marketing budgets are going, and if media is being bought in their best interests.

As Pivotal's Wieser summarized in his recent research note on Omnicom's earnings: "While we recognize that agency holding companies convey that they are transparent with clients about the topic, our conversations with suppliers and clients convey to us that many clients may not fully understand specific arrangements that are in place between suppliers and agencies. This is ultimately consistent with the views articulated at last month’s ANA conference and echoed by many others in the industry as well. We continue to expect further noise to emerge on this topic over the course of the year."

Business Insider is investigating the client/agency transparency issue. If you would like to provide information, both on-the-record, or anonymously, please contact loreilly@businessinsider.com

SEE ALSO: Analyst advises investors in ad agencies to 'move to the sidelines' or 'exit the sector altogether'

SEE ALSO: 20 crazy, beautiful ad agency staff photos

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In true Don Draper style, the list of executive perks for some of adland's top-ranking executives is swanky to say the least.

Private jet travel, big car allowances, "golden coffins," and corporate apartments make up some of the perks of advertising's rich and famous.

We've ranked the top 10 packages from least to most extravagant, using information from company annual reports and SEC documents. Of course that means that some other expenses — such as wining and dining clients in exclusive restaurants — aren't disclosed. But our ranking gives some indication as to which execs get the best perks (on top of their salaries and bonuses) in the business.

Michael Roth, CEO of IPG: $22,952 in perquisites.

For a CEO, Roth has one of the most modest big holding company perks packages on Madison Avenue.

Of his 2014 "perquisites," $20,000 of that went to a charitable matching program, while $2,592 went on his dental plan.

Dennis Hewitt, treasurer at Omnicom: $29,777 in "other compensation."

In 2014 Hewitt received an auto allowance of $7,200 and a medical allowance of $4,000.

Kevin Roberts, executive chairman of Saatchi & Saatchi: The only member of Publicis Groupe's management team to receive considerable benefits.

Roberts received €23,516 in "benefits in kind" in 2014. Publicis Groupe only reports benefits in kind (which are in relation to use of a company-provided vehicle) if they are for a material amount.

However, as we pointed out in 2012, it is likely an even greater sum of money is spent financing Roberts' air travel for his business trips. He also spends around 250 nights a year in fancy international hotels that often cost more than $600 per night.