Labor Pains

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Amid all the employment pitches that agency chief Ralph Callahan received this summer, one stood out. "You pay $30,000 the first year, and whatever you think I'm worth the year after," wrote the head of a creative team at a top shop in New York who was anticipating layoffs.

"This was someone I had worked with, very talented, working at a big Manhattan agency," says Mr. Callahan, chairman of Henderson Advertising, a $65 million agency in Greenville, S.C. "I felt empathy, sympathy, shock and exhilaration. I got insight into how dramatically the employment market has changed."

A year ago, says Mr. Callahan, convincing a candidate of that caliber to move to a small Southern shop, with uncertain compensation prospects, would have been nearly impossible.

In sharp contrast to the red-hot pace of recruitment 12 months ago, ad agencies are firing, not hiring. After reaching a 10-year peak in Aug. 2000, monthly employment at U.S. advertising agencies declined steadily through June 2001, according to the Bureau of Labor Statistics.

In San Francisco, for instance, major agencies have reported firing more than 500 employees since the beginning of the year. Agencies have been closing up shop-Dweck in New York, Omnicom Group's Rapp Collins in Minneapolis, and Publicis Groupe's Saatchi & Saatchi in San Francisco, to name a few. And layoffs continue at agencies week by week.

Prospects also are few for less experienced-and hence less expensive-job seekers: At Northwestern University in Evanston, Ill., numerous graduates interested in advertising and marketing remain unemployed. Kari Susens, senior assistant director of career services, says some agency employers who've extended offers to grads have postponed hire dates.

Dot-com excesses forced agencies to bid up compensation to attract and retain talent. That's over, and there are signs compensation for new hires is coming down to what agencies see as more realistic levels. From the bottom to upper ranks, candidates are expecting lower pay compared with last year.

FAMILIAR SCENE

"Candidates a year ago were a lot more aggressive in their salary demands than they are right now," says Stone Roberts, chairman-CEO of Interpublic Group of Cos.' Gotham, New York. "You don't need headhunters. I get a lot of mail."

Ad agency life, in a way, is returning to a familiar scene for those who entered it before the '90s boom: an excess supply of labor. Says Patty Enright, exec VP-director of human resources worldwide at Bcom3 Group's D'Arcy Masius Benton & Bowles: "The employer has control again."

But agencies really aren't in control; the buck stops with the client. And marketers are paring spending as they labor to deliver profits while sales and the economy falter.

The easiest way for clients to improve financials is "to simply cut marketing and advertising expenses," says George Fertitta, president, MDC Communications' Margeotes/Fertitta & Partners, New York. That can translate to lower revenue for agencies as advertisers cut media spending or demand lower fees. And that translates to fewer jobs and fewer hires.

"It's a matter of volume," says Linda Schaler, a recruiter at Gundersen Partners, a recruitment firm. "The level of need from [ad agencies] has declined."

As existing clients pull back, agencies can't rely on new accounts to fill the gap. "There isn't a lot of new business up for grabs right now," wrote Geoff Thompson, chairman-CEO of Foote, Cone & Belding, San Francisco, in a staff e-mail following layoffs of 45 employees. "This is a roll-up-your-shirtsleeves time."

Mergers and acquisitions are another cause of reductions. After buying FCB parent True North Communications in June, Interpublic said it was closing or merging 75 Interpublic offices globally. It also has reduced its global staff by 10%-a total of 5,700 jobs-this year, partly to streamline operations and partly in response to poor business conditions. That appears to be the biggest agency job reduction in history.

Yet despite the decline in available jobs and slimming of marketers' pocketbooks, some industry observers see the current environment as a return to normal. "It is important to remember that 2000 was an aberration," says Jack Clarke, managing director at media investment bank Veronis, Suhler & Associates, New York.

The $305 billion that Veronis Suhler says was spent by marketers on U.S. advertising, marketing services and specialty media last year was nearly 10% more than the $278 billion spent in 1999. The compound annual growth rate of marketers' spending from 1996 through 2000-a period of a sustained boom economy-was 8.1%.

Though Veronis Suhler's projected growth rate of 1.3% this year is meager in comparison, Mr. Clarke believes ad spending and branding will continue to grow in coming years.

HERE AND THERE, SOME ARE HIRING

Veronis Suhler in July scaled back its announced projections after last year failing to forecast the 2001 ad slump. But it sees a turnaround in 2002, predicting spending on advertising, marketing services and specialty media will increase 6.4% to $329 billion. It expects the compound annual growth rate for 2000 to 2005 to be nearly 5%. "There is too much doom-and-gloom in the market right now," Mr. Clarke says.

Here and there, some agencies are hiring. WPP Group's Y&R Cos., Irvine, Calif., is looking for 25 to 30 staffers, thanks to Ford Motor Co.'s transfer of Lincoln, Mercury and Jaguar accounts to Southern California. Amid the decimation of interactive agencies, a few are adding staff; Interpublic's interactive firm R/GA, New York, recently filled a newly created creative director position and has spots for a senior producer, associate producer and programmers. Mr. Callahan's Henderson Advertising needs an account planner and an account executive.

In San Francisco-"the Chernobyl" of the advertising meltdown, as one agency executive put it-there are high-level openings at agencies including Leagas Delaney and Interpublic's McCann-Erickson Worldwide.

Gundersen Partners' Ms. Schaler, other recruiters and agency executives note that even in economic slowdowns, the hunt continues for employees with the right skills and attributes.

"Recessions come, recessions go, but great talent is always in demand," says Steve Blamer, president of Grey Global Group's Grey Worldwide, whose attempt to hire Andy Hirsch, Alex Gellert and Randy Saitta from Omnicom's Merkley Newman Harty for key executive positions failed in August after Omnicom refused to release them from contracts.

This year, agencies are recruiting for some posts even as they make other cuts. In this economy, it's still not easy to fill the most critical jobs, such as creative leaders with management experience who fit a given agency's culture, says Sharon Spielman, managing director of headhunter Jerry Fields Associates.

Agencies are capitalizing on the changed market. "Now, employers can be more thoughtful and strategic," says Ms. Enright, the D'Arcy human resources executive. "Now, we'll get to know who is in the market and the skills they have. Because in time, we will be looking again."

Contributing: Cara Beardi and Alice Z. Cuneo

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