Agency Outlook Bright as Business Expands

Dec 12, 2005  •  Post A Comment

By R. Craig Endicott and Maureen Morrison

Advertising Age

An upswing in ad agency revenues for 2006, stronger compensation packages including better raises and bonuses than employees got going into this year and stepped-up hiring are on the immediate horizon, according to the 14th annual Advertising Age Salary Survey.

That horizon also will likely contain the persistent elements of agency life: Higher salaries in the East, the loss of the bonus as a given and gender gaps in which there are fewer women than men in management roles and lower pay for women. What won’t appear in 2006 is the “future” agency-new media relationship, an area of the business that continues to challenge agencies. “We’re all clamoring to get there [to that future] at the same time, but none of us are there yet,” said Bob Tabor, managing partner at Denver-based agency Thomas Tabor & Drazen.

That journey, according to agency executives, involves finding, hiring and/or training interactive personnel who have skill sets across both traditional and new media platforms, such as blogs and cellphones. New media activity is a big reason surveyed agencies expect an average net gain of three people in 2006, compared with one for each of the past two years.

Bullish on Growth

Without agency revenue gains, even online talent would go begging. Surveyed agencies are bullish about next year. Of the 172 agencies in the survey, 85 percent forecast revenue growth in 2006, with 46 percent of those pegging growth at 10 percent-plus, considerably rosier than the 71 percent of agencies that grew in revenue this year, half at 10 percent-plus, and the 62 percent that reported revenue growth in ’04, half at 10 percent-plus.

Raises for 2006 are expected to be 4 percent to 6 percent, about the same as this time last year. Year-end bonuses will be 3 percent to 7 percent of base pay for nonmanagement posts, same as in 2004, and 10 percent to 12 percent for management versus 4 percent to 9 percent in 2004. Agencies expect to spend 19 percent of profits on bonuses this year versus 14 percent in 2004.

But even with considerable blue skies ahead, agencies aren’t uniformly shaking the money tree. Salary freezes were initiated by 22 percent of the agencies in 2005-an improvement over 32 percent in 2004. Depending on the position, 38 percent to 50 percent of staff won’t get a bonus versus 41 percent to 51 percent in last year’s survey. Bonuses have been slow to return since net income took a bath in 2001.

Employment Growth

With head count and revenue growth directly related, it’s little wonder 79 percent of shops predicted they will increase employment in 2006. By comparison, 54 percent of agencies reported they gained head count in 2005.

Interactive is not only crucial to an agency, but in and of itself stimulates agency head count because it is people-intensive. On any given project, interactive marketing may involve 20 to 30 executions-from short-term microsites to HTML e-mail to brochures-and design must function across all platforms.

Scarcity remains a factor in the interactive sector and a boost to pay. “We’re seeing a great demand for programmers and interactive media. And there is a shortage of talent. A person with two to three years’ experience in this area can easily double their pay,” said Drew Neisser, president and CEO of Renegade Marketing Group, a New York-based firm controlled by the Japanese ad agency Dentsu.

“The talent pool for interactive has shrunk in New York,” said Frank DeMarco, managing partner of Outside the Box Interactive, New York. He said a large number of talented people left the city after the dot-com crash and subsequent recession.

Those techies have not migrated to Atlanta, where interactive marketers are in big demand, said Brent Kuhn, president of local agency BVK, although he thinks ongoing intensive training programs will turn that around within two years. In fact, he said, “We’re having a dilly of a time getting qualified people in most positions.”

The South Rises

That net gain of three employees per shop in 2006 won’t be evenly distributed among regions. The South and East each will record net gains of four employees, the West 2.5 and the Midwest just one, according to the survey.

The survey shows the highest base pay in 2005 is found in the East and West, the lowest in the South. Yet the South is catching up on many fronts, albeit with a caveat. The survey, distributed in early September, excluded ZIP codes in southern Louisiana and the Gulf Coast of Mississippi because of the devastation in those areas from Hurricane Katrina.

That said, for 2006, Southern agencies are the most bullish among the regions: 92 percent of them anticipate revenue growth, and some 39 percent expect 10 percent-plus growth. Additionally, net employment growth is expected by 82 percent of Southern shops, second only to 85 percent of agencies in the East, and raises in the South for 2006 are higher on average among all positions than in other regions.

The flip side of hurricane devastation is growth. “There’s a tremendous influx of money coming into the Gulf Coast now,” said Danny Mitchell, chairman and CEO of Godwin Group, Jackson, Miss., “and that will have a positive impact on all business.” The South’s economy was not strong to begin with in 2005, he said.

For 2005, the West had the largest percentage of agencies registering 10 percent-plus revenue growth and the highest number of agencies whose head count grew (59 percent). The West’s emerging strengths in 2005 are tied to renewed strength in the high-tech industry, Mr. Tabor said.

Gender Inequity

Still, some things never seem to change. There were slightly more women than men in the survey (50.6 percent), as has been the case the past two years, and they draw less pay than men in 12 of 14 positions.

In numbers, women dominate the lower-paying posts from media to account management. As an example, women account executives outnumber men 732 to 287 in the survey. Conversely, male CEOs outpoll female CEOs 161 to 39.

Women pull higher pay than men only as account planners and associate creative directors, the latter possibly a skew because of sample size and the fact that men outnumber women three to one in the position. Female associate creative director salaries come with a sample error range of 11 percent versus 6 percent for males.

“The men who run these agencies [in the survey] likely got into the business when women weren’t in advertising as much as they are now,” said Kathy Cornett, chairman of McCormick Co., Amarillo, Texas. “Our numbers just keep rising.”