Influencer Compensation

The rise of social media has transformed the marketing landscape, ushering in a new era of influencer-driven campaigns that leverage authenticity and relatability to connect with audiences. These influencers wield unprecedented power to shape opinions, drive consumer behavior, and influence trends. With this influence comes a myriad of opportunities, including lucrative compensation contracts with brands eager to tap into their reach. As brands allocate increasing portions of their marketing budgets to influencer collaborations, compensation contracts have become a cornerstone of these partnerships. And competent contract negotiation, completion and documentation typically leads to finding a good lawyer, due diligence, and strategic decision-making.

Navigating these agreements requires more than just a sizable following and engaging content. For the best results, an influencer should have some background in the legal, financial, and ethical issues covered by law and contract.

To maintain credibility, influencers should know what is legal and what isn’t. The Federal Trade Commission (FTC) has published guidelines on paid endorsements, defining an “endorsement” as any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser. When influencers receive compensation, whether monetary or in-kind, to promote a product or service, their endorsements must be disclosed clearly and conspicuously. Disclosure should be made in a manner that is easily understandable to the average consumer, using unambiguous language and placement that is hard to miss. As laid out in the FTC’s Endorsement Guide (16 CFR Part 255), the FTC mandates clear disclosure of paid endorsements to protect consumers from deceptive advertising practices.

“Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser. Furthermore, an endorsement may not convey any express or implied representation that would be deceptive if made directly by the advertiser.”  When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a real user of the product at the time the endorsement was given. The key language is worth repeating: Under the guidelines, an endorsement is “any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.” Additionally, the advertiser may continue to run the advertisement only so long as it has good reason to believe that the endorser remains a real and honest user of the product.

These guidelines on endorsements also carefully regulates the relationship of the endorser and seller.

“When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement, and that connection is not reasonably expected by the audience, such connection must be disclosed clearly and conspicuously. Material connections can include a business, family, or personal relationship. They can include monetary payment or the provision of free or discounted products (including products unrelated to the endorsed product) to an endorser, regardless of whether the advertiser requires an endorsement in return. Material connections can also include other benefits to the endorser, such as early access to a product or the possibility of being paid, of winning a prize, or of appearing on television or in other media promotions. Some connections may be immaterial because they are too insignificant to affect the weight or credibility given to endorsements. A material connection needs to be disclosed when a significant minority of the audience for an endorsement does not understand or expect the connection. A disclosure of a material connection does not require the complete details of the connection, but it must clearly communicate the nature of the connection sufficiently for consumers to evaluate its significance.” (§255.5)

When this relationship exists, the influencer is now a paid influencer promoting products, services, brands, or causes on social media platforms, blogs, or other digital channels. They may receive compensation, such as money, free products, discounts, or other incentives, in exchange for creating and sharing content that promotes the interests of a brand or sponsor.

While paid influencers may be subject to general advertising regulations and guidelines, they are not typically regulated by financial authorities like the SEC unless their activities involve raising large amounts of money or selling securities to people.

Arousing the attention of regulators, Kim Kardashian posted a promotion of a prescription drug for morning sickness. Although Kardashian explicitly mentioned her partnership with Duchesnay USA, the manufacturer of the drug, to adhere to FTC guidelines, the FDA criticized the post and issued a warning letter to Duchesnay rather than Kardashian. The FDA stated that Kardashian’s post was misleading as it promoted the efficacy of DICLEGIS without adequately disclosing its associated risks. Kardashian then had to post corrective social media posts addressing the risks of drugs. Although the FDA took no further punitive action against Kardashian, they did show that they are invested in monitoring and policing influencer claims. While in another government corner, the SEC made an example of Floyd Mayweather Jr. and DJ Khaled for promoting investments in a crypto currency company without revealing that they’d been paid for their endorsement. Enforcement Division codirector Avakian said at the time, “With no disclosure about the payments, Mayweather and Khaled’s promotions may have appeared to be unbiased, rather than paid endorsement,” and so it was that the influencers forfeited their fees, paid additional fines, and agreed to a multi-year ban on similar endorsements.

In the case of In re Diamond Mortg. Corp. of Illinois, 118 B.R. 588 (Bankr. N.D. Ill. 1989), an actor in the commercial was sued for civil liability for misrepresenting the product. While denying the defendant’s summary judgment motion the Court found that the endorser “had a duty pursuant to the FTC Guides to substantiate the truthfulness of the endorsements and obtain independent and reliable information regarding the financial stability”. The case later settled so there was no final judgment in that case outlining the scope of the influencers’ duty.

What does regulation mean for the influencer?

Every influencer, or one who aspires to be, now may have the duty to know the regulations that govern the product that they are promoting. As the enforcement of social media promotions advance, it becomes essential for paid influencers to understand their legal obligations, comply with relevant regulations, and maintain transparency and integrity in their promotional activities to ensure consumer protection and regulatory compliance.

Influencers should consider protecting themselves by written contracts that outline the terms of the partnership between the influencer and the brand. Contracts should clearly specify the scope of work, compensation details, content ownership rights, and any other relevant terms and conditions. They need to be aware that they clearly disclose any sponsored content or partnerships in accordance with the applicable laws and regulations, such as the Federal Trade Commission (FTC) guidelines in the United States. Transparency is key to maintaining trust with the audience.

When determining compensation for the endorsement, an influencer should clearly define the payment terms in the contract, including the amount of compensation, payment schedule, and any additional incentives or bonuses. It’s important to specify whether the compensation will be in the form of a flat fee, commission, free products, or a combination of these, and how the payment links to the actual performance of the endorsement and what performance metrics and deliverables that the influencer is expected to achieve, such as reach, engagement, conversions, or other key performance indicators (KPIs). This ensures accountability and helps measure the success of the partnership.

Impact.com predicts that the influencer marketing business shall exceed $24 billion in 2024. Big business brings big profits, big risks, and the need for the influencer’s team, managers and agents, to be up on what influencers make. Whether a mega-influencer celebrity with 1 million followers or a micro-influencer with 15k to 75k followers, the team should know what influencers make per post, cost by social media platform per post, the production cost for an influencer to create short video content for TikTok or Instagram or long content for YouTube, and how to negotiate between influencers and brands. (https://impact.com/influencer/how-much-do-influencers-charge-per-post/ )

It’s advisable for both parties to have the contract reviewed by their respective legal counsel to ensure compliance with applicable laws and regulations and to protect their rights and interests.

By recognizing and adhering to the rules and guidelines, influencers and brands can establish mutually beneficial partnerships while minimizing legal risks and ensuring compliance with relevant regulations. This preplanning can help to alleviate many pitfalls that can occur in the endorsement partnership dynamic.

The Boesch Law Group has assisted influencers, brands, managers, and agents with their contract issues and negotiations. To speak to a BLG influencer attorney who can help guide you across the changing landscape call us today at (310) 578-7880.