Close-Up: Live Issue - Can adland justify such big salaries?

Are the pay packets demanded by agency chiefs a true picture of their worth, Kate Nicholson asks.

In an age of rising accountability, declining margins and increasing pressure from client procurement, how can agency fat cats command - and justify - such large salaries?

Last week, the news that Bartle Bogle Hegarty increased the salary of its highest-paid director by 10 per cent, to almost £667,000, was met with some surprise, to say the least. Despite another successful year, the figure equals a significant percentage of the agency's overall profit. But even that salary pales into insignificance when compared to Sir Martin Sorrell's. The WPP chief executive pays himself an eye-watering £2.7 million.

In their defence, it's easy to forget how hard agency heads work. Bob Willott, the editor of Marketing Services Financial Intelligence, argues that, in most cases, it's money well earned: "The global groups are not always the happiest of places to spend a career, and the responsibilities can be very heavy, so this also creates financial pressure on those groups to 'buy' loyalty."

So, yes, advertising executives are paid well, but boy, do they have to make personal sacrifices. It is a life that consists of early-morning starts followed by late nights entertaining clients and working through their weekends on pitches.

Jeremy Miles, a partner at Miles Calcraft Briginshaw Duffy, says: "As far as privately owned businesses go, the people at the top have all worked very hard, put the hours in and built up the agency. I see no reason why they shouldn't pay themselves what the agency can afford."

What's more, with the digital turmoil now unsettling agencies, some are in a panic about how to keep, let alone increase, traditional revenues. The fear of losing a good chief to a rival company is reflected in pay packets - however irrational that may appear.

Unfortunately, executives in the discipline, as in any discipline, like to show off their wealth; they drive Aston Martins, wear expensive suits and buy watches that warrant individual insurance assessments.

And the danger with this is that it winds marketers and their procurement experts up. One client source says: "It's like Disneyland, and just goes to show that advertising agencies are continually ripping off their clients."

The argument goes that as long as agency executives flaunt the trappings of a lavish lifestyle, procurement agents will detect that there's surplus cash sloshing around their advertising and media agencies and swing their axes accordingly.

No-one doubts the responsibilities placed on chief executives in the marketing services sector, but are their reward packages - or the bonus elements - intended to reflect bottom-line performance?

Agencies counter that clients don't expect their legal advisors and management consultants to toil away for peanuts. Why should they demand that their agencies continue to do so?

Neil Christie, the managing director at Wieden & Kennedy London, says: "Suppose a client was hiring a lawyer and wanted a QC. They would expect to pay through the nose for them. The same goes for the people running ad agencies. They are going to demand a price that reflects their talent."

Intangibles such as brand messages and strength make a huge contribution to shareholder value. It's worth thinking about the danger some of those brands could face if agencies were no longer able to attract and lock in the best talent.

- Got a view? E-mail us at campaign@haynet.com.

HEADHUNTER - ALISON PARKER, PARTNER, THE GARDEN PARTNERSHIP

"In today's market, roles at the top are very tough. The buck stops with the person running these agencies.

"There aren't many people who are good enough to do these jobs. It's worth remembering that the people at the head of successful agencies could just as easily swap sectors and command an equally large salary.

"I think shareholders will look at the overall performance of an agency and not the individual. As long as they are doing a good job and are helping the client, these kinds of salaries can be justified.

"As long as the client feels they're getting value for money, they shouldn't have a problem."

AGENCY CHIEF - JOHNNY HORNBY, PARTNER, CLEMMOW HORNBY INGE

"It's important to distinguish between an independently owned agency and a shareholder-owned agency. Independent agencies don't have to give any of their salaries to a pension fund in Iowa.

"None of our managing partners had pay rises this year. I'm earning the same as I did when I worked at TBWA\London in 2001. We align what we do with what the client does. We charge the going rate, which has been regulated by ISBA, but ask the client if we do an above-average job, then we'd like an above-average bonus.

"We aim to give all staff below management a share of the bonuses we receive. The managing partners only get part of this bonus after all our staff have."

FINANCIAL ANALYST - BOB WILLOTT, EDITOR, MARKETING SERVICES FINANCIAL INTELLIGENCE

"Like most surprising financial data, the picture is probably not quite as stark as it first appears.

"For instance, companies now have to reveal the benefit of share-incentive schemes as part of staff remuneration packages, and senior personnel, such as directors, are normally the biggest beneficiaries. This may have prompted a one-off jump in costs that is more apparent than real.

"History shows that senior personnel in ad agencies are over-priced. They are perceived as important because of the historically high client spend that flowed through their control and the tendency for client loyalties to be more closely linked with the individual than the agency."

NETWORK CHIEF - STEVE GATFIELD, CHIEF EXECUTIVE, LOWE WORLDWIDE

"The commercial and financial aspects of running a unit, let alone a network, are testing. The majority of the talent pool wasn't groomed for this. You end up with a very narrow band of people who have the entrepreneurship and management alchemy to run a creative business in a hyper-competitive market.

"A majority have sculpted their own career, rather than being the product of a management-development fast-track that exists in blue-chip marketers.

"The balance of fixed to variable compensation has shifted, so that more is paid-for results. The City wants to see stability, vision and performance and will support those who can deliver it."

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