Coca-Cola's new proposal for value-based agency remuneration recently made it across the ocean to the headlines of the German trade press. It looked like a new discussion about agency-remuneration models, but there is nothing new about it.
In the end, performance-based elements have been used by clients and agencies for years. This is just another way to put downward pressure on agency compensation, one that's seen strong criticism from the head of Germany's ad agency association, Peter John Mahrenholz, who's the CEO of Draft FCB there.
This discussion is a sign that agency management faces big challenges in negotiating the right fee for the services rendered. As remuneration becomes tighter and tighter, ups and downs are more and more closely linked to hiring and firing talent.
Many agencies are trying to break the cycle of hiring in good times and massive layoffs in bad times, something related to the second big topic of last week's headlines, kurzarbeit. It translates into "working short." But there is more about it than just working less.
In the times of the dot-com crisis, agencies laid people off quite quickly. In the following boom, it became obvious that this was a costly brain drain for many agencies that resulted in severe growth limitations when the business gained momentum again. This time things are quite different. Most agencies are trying to keep employment up as much as possible. The German (and quite similar Austrian) laws and state help with a special solution called kurzarbeit.
Kurzarbeit was invented in the beginning of the last century to help companies in businesses with heavily changing workloads that the management could not control (due to weather or market fluctuations) to keep their employees through periods of less business and therefore avoid further and possibly higher social costs of unemployment. The model has different elements. In short, this solution means a greater part of a company works less for a couple of months and the state compensates for some of the wage loss incurred.
An example, given by the German trade magazine "W&V": A married employee with a child and an income of €2,500 during Kurzarbeit earns only €1,250. The state adds to that an amount that results in a compensation of 67% of his net loss. So the employee in this case ends up taking home "only" €140 less than his regular pay, which can be hard for a family, but is better than losing the job (or the company losing the talent).
Kurzarbeit can be limited to specific departments of a company and can be stopped in case of sudden rise of workload. It can't be ordered by the management, and in many cases the company has to close an agreement with its employees' representative. The longest time possible is 18 months, but there are plans to extend this to two years.
We found out recently that the German advertising industry is starting to use this support, which comes as a surprise to many. The service is associated with old industries, such as auto manufacturing, and kurzarbeit in advertising was unthinkable. But that has changed. This turn toward kurzarbeit shows how much of a normal trade advertising has become.
But kurzarbeit is only an answer to a situation of less work in the traditional sense. In the case of compensation cuts, the first solution can't be working less, it has to be working more efficiently in general. Also, the agency business is always a combination of existing accounts and new ones. Many agencies today face a situation of intensified new-business activities to compensate for a tighter market situation -- which means employees have to work more rather than less.~ ~ ~
Gunnar Brune is managing director of Lowe Deutschland in the lovely harbor city of Hamburg. He studied Marketing and Constitutional Law. Prior to Lowe he worked at Zum goldenen Hirschen and Scholz & Friends in the fields of brand strategy and communication management. His current special interest is the evolution of cross-media communication strategies.