The ad industry is not for the faint-hearted. And it’s not for the
risk-averse. After all, when agency bosses retire, you should still be
able to find the words ’boom and bust’ tattooed across their hearts.
But nowhere is this rollercoaster ride more steeply pronounced than in
the vexed realm of staff pay. The lurch from the overstaffed and
overpaid agency of 80s legend to its exact opposite has been one of the
defining characteristics of adland life over the last decade and more.
It’s a cycle which might just be starting all over again.
That at least, is the suggestion contained in research carried out by
the specialist accountancy firm, Willott Kingston Smith (Campaign, 28
August). The research confirms what apocryphal evidence might have
already suggested: that costs, especially staff costs, are now rising
faster than agency revenues.
’The problem is that all agencies, big and small, are finding an
increasing demand for the sort of staff they want to take on,’ Steve
Waring, a partner at Willott Kingston Smith, says. ’The result of that
is that wages are now representing too high a proportion of their
In fact, employment costs rose from 52.8 per cent of gross income last
January to 53.2 per cent in June. They are still some way short of the
nadir reached in 1993 of 58.2 per cent, but then that, after all, was in
the very worst days of the last recession.
And it all seemed a bit different five years ago when agencies couldn’t
get rid of staff fast enough. The ad industry shed about 3,400 workers
in the five years to the end of 1993. That was about 700 a year - or two
a day, every single day, for five years.
And that’s just figures for members of the IPA, which declined from
15,400 in 1989 to 11,000 in 1993. Numbers for the industry as a whole
were much greater - from half as much again to twice as much, depending
on how wide you drew the defining net.
The problem since things started to pick up again is that agencies have,
this time, been too reluctant to make the corresponding transition from
recession by adding to staff levels. The result is a serious skills
shortage that is pushing prices ever higher.
’As an employer you are always a little frightened whenever there is an
upturn,’ Deborah Holdgate, the finance director at Partners BDDH,
’You tend to expect existing staff to work harder at first, rather than
take on new people, because you are frightened that the upturn won’t
last. And then, of course, you suddenly find yourself recruiting staff
in a hurry as you start winning more business. We’ve had to add another
50 per cent to our staff numbers over the past 12 months alone.’
Unfortunately, as this kind of demand increases, so does the price
commanded by quality staff - typically those of three to five years’
experience who can contribute from day one. Those staff, in other words,
who entered the industry in the last recession, when hirings were at
their lowest level.
A seminal report published two years ago by the industry and company
data analyst, ICC Information, revealed how draconian the cost-cutting
had been. It pointed out that the ad industry had shed its 80s
reputation for profligacy with a vengeance. Staff numbers at top
agencies had dropped from a pre-recession high of around 150 in 1991 to
100 in 1995, while average salaries had fallen and profit per employee
And of course it’s precisely this legacy of cutbacks that agencies are
now encountering, in these more buoyant times. Because for so many
agencies, one of the first acts of the recession was to cancel graduate
’It is a key issue for all agencies now to get a decent share of the
talent,’ the Publicis chief executive, Richard Hytner, says. ’There is a
yawning gap at a certain level because of the industry’s failure to
recruit the bright young things when the going got tough.’
Perhaps more worrying still are two new factors that have added to the
problem since the last recession: increasing competition for the best
graduates from other sources, and the trend for agencies to offer
clients fully integrated services, without receiving fully integrated
’We have started to recruit graduates for the first time and it
surprised us how much we have had to pay for these entry-level
positions. And that’s primarily because everyone - management
consultancies, the law, accountancy - are now after the same people,’
What could prove to be the most devastating blow for many agencies,
though, is the fact that they painted themselves into a service corner.
Clients increasingly expect their agency to provide additional staff to
add value to their accounts in ancillary marketing areas, but don’t
always expect to be billed for it.
’One of the biggest factors in this increase in the percentage of wages
to overall costs has been the fact that so many agencies have forgotten
they are communications specialists and started taking on a greater
proportion of clients’ overall marketing operations,’ Adam Crozier, the
joint chief executive of Saatchi & Saatchi, says. ’They are taking on
staff and offering themselves to clients as integrated shops without
being adequately paid for these services. They are losing sight of the
fact that they are really specialists, and seeing their wage costs