Layoffs have been key to most cost-reduction strategies, evidenced by an average 15% reduction in size of the 262 mostly small to medium-sized agencies participating in Advertising Age's 10th annual Salary Survey, and a 7.9% headcount decline from October 2000 to October 2001 for the nation's Top 40 agency employers. (See accompanying charts.)
While most agencies have undergone layoffs, they scrambled to prevent them, employing a wide range of job and pay schemes including job-sharing, sabbaticals, voluntary time off and a shorter workweek. These efforts often promote volunteerism among all staff members, infusing a one-for-all and all-for-one spirit characteristic, if not borne, by the tragedy of Sept. 11 and its impact on the American psyche.
"Sept. 11 delivered an emotional blow, but we had been locked in the technology crisis in the Silicon Valley since March when 50% of our business was tech clients. Now it's 2%," says Beryl Israel, CEO at Carter Israel Advertising & PR, San Jose, Calif. When she told her staff "how things were," all management and partners volunteered to work for 25% to 50% less salary. Half the remaining staff was put on a four-day workweek. "People aren't walking around with their heads turned down, either. It's amazing," she says.
Fellow Bay agency, Omnicom Group's Goodby, Silverstein & Partners, cut pay for the top 40% of its wage earners, graduated by salary level, after Sept. 11. While the terrorist attacks, ongoing anthrax threat and military campaign in Afghanistan didn't precipitate the economic downturn, it blunted any hope of a quick recovery. Agency executives say just about all work was put on hold during September to review campaigns and alter marketing strategies.
"People hunkered down after the attacks," says Steven Addis, CEO of Addis, a Berkeley, Calif.-based branding agency. The shop is not issuing raises or bonuses to its staff, down to 20 from 80 a year ago. Additionally, the agency imposed a 15% salary cut on management in September, to be reviewed quarterly. "Lowering salaries is not terribly motivating, but it's better than layoffs," says Mr. Addis, who in January made his agency's first staff cut in 15 years. As a way to "protect" former agency employees, the company shifted to an outsource model, handing free-lance work to those laid off, some of whom retain their old desks at the agency.
SicolaMartin, the Austin, Texas-based unit of WPP Group under the Young & Rubicam arm, laid off 25% of its workforce in August and is outsourcing a lot of work "at rates much more favorable than the past," says Chief Financial Officer Tommie Huggins. The agency won't pay bonuses. "If we were to pay bonuses, it would be unconscionable given the cuts," she says.
GIVE UP DAY OF SALARY A MONTH
"After Sept. 11 we asked everyone to give up a day of salary in September, October and Novem-ber, and promised we wouldn't consider layoffs until 2002," says Bruce Kupper, CEO of Kupper Parker Communications, St. Louis. He wants staff in place when the turnaround comes. Kupper Parker also has adopted strict credit rules since being burned by some non-paying high-tech and dot-com clients. "Now it is not who we're going to [pitch], but how well are they going to pay."
Gardner Geary Coll, San Francisco, froze salaries in August for a staff that had been cut 20% early in 2001. Many staffers are working nine out of 10 days. Under California's work-share program, they're considered 1/10th unemployed and eligible to receive state unemployment checks for the lost day.
Frankel, Chicago, a Publicis Groupe agency, is contemplating a panoply of pay schemes to protect jobs (its workforce is down 8%-10% from a year ago), according to Jim Cherrier, director of compensation and benefits. "This flexing is weighed against projected new business gains to ensure we've got the people on hand to handle new work," he says. He cautions that employer and employee alike need to leap psychological barriers regarding flex-time issues. He notes there is a prevalent attitude needing reassessment that says the less one works the more disinterest one shows in the job.
Agencies doing well are just as cautious with their payouts. Hispanic agency Viva Partnership, Miami, an agency up nearly 30% in gross income this year, is "bonusing out a number of days next year to keep cash in the house in case of emergencies," says President Linda Lane Gonzalez.
"We keep our overhead down by running a lean and mean organization," says Linda Kaplan Thaler, CEO of Bcom3 Group's Kaplan Thaler Group, New York, which has had a healthy year of new business gains. "That way money can be spent on really important things like salaries and job retention," she says.
Whatever measure taken to hold down costs, agencies must preserve their "hitter teams," says John Freebairn, president of Freebairn & Co., Atlanta, in speaking of those senior-level executives who bring in business. "We'll hire a senior-level position [to fill a key slot] if November and December do what they're supposed to do," he says.
Contributing: Alice Z. Cuneo