NATIONAL AD AGENCY SALARY SURVEY 2001

The Big Picture: Pay Cuts, Bonus Deferments, Layoffs

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CHICAGO (AdAge.com) -- The job -- not the level of pay, much less the raise or bonus -- is what's on the minds of agency employees and employers alike, Advertising Age has found in its annual salary survey.

The economic downturn hit advertising agencies at the end of last year after the dot-com bubble burst and only worsened as the nation slipped into recession last March. These events have deflated ad agency economic growth and pared advertising employment levels 6.8% from the fourth quarter of 2000 to fourth-quarter 2001.

The more vulnerable agencies have gone out of business, some have merged, and still others have stayed afloat by flexing with various sorts of pay schemes.

Meanwhile, layoffs roll in waves across the country and aren't likely to let up until mid-2002, according to many agencies surveyed in this report.

40 largest agency employers
The Ad Age survey of the 40 largest agency employers finds headcounts down a

collective 7.9% from October to October. These elite agencies employ just over a quarter of all employees in the advertising industry. Half the 40 are headquartered in New York, which proved more resilient than the rest in registering a collective 5.6% decline in employees vs. 12.2% elsewhere.

Among the group of 262 largely small-to-midsized agencies responding to questionnaires for this 10th annual Ad Age Salary Survey, 30.8% of them employ more people in 2001 than 2000, with six staffers the average gain; yet at 43% of the agencies, headcounts are down an average 19 per agency. It's little wonder only 48% of the agencies reported growth in gross income for 2001 (vs. 75% in last year's survey).

Contraction in agency personnel should stop next year if agency growth projections pan out. Just over two-thirds of surveyed agencies expect growth in gross income in 2002 and 39% of those expecting growth believe it will rise 10% or more. That would go a long way toward restoring jobs, raises and bonuses.

Key agency exec salary declines
Meanwhile, the average salary level in 2001 for the 11 key agency positions surveyed actually declined across the board from averages in 2000. As an example, pay for CEO dropped from a $186,000 average to $167,000; chief financial officer from $97,000 to $92,000; and lead account

planner from $76,000 to $70,000. This finding seems highly unusual given that agency demographics basically mimicked the survey composition in 2000 when all positions were up.

Follow-up interviews with agencies indicate this reduced pay is hardly a statistical fluke. It speaks to how agencies are desperately trying to minimize downsizing and in some cases stay afloat.

Pay cuts
Agencies have initiated pay cuts during the year, deferred raises until better times, offered employees days off without pay to avoid layoffs, frozen salaries at all levels, increased the employee's share of benefit contributions, which cut into base pay, and replaced high-paid employees with hires making lower pay.

Raises for 2002 are down from 2001, although many employees will not receive a raise according to responses from 23% to 33% of the agencies-a range that covers all employees surveyed. At agencies offering raises, the average will be 4% for seven key agency rank-and-file positions, down from 6% these positions enjoyed this year. But for those who get a bonus this year, that bonus is expected to reach 4.6% of base pay vs. 7.7% bonuses dished out this time last year. More than half the agencies surveyed will not award bonuses.

Neither will 2002 be a banner year for the top three agency positions surveyed-CEO, creative director and chief financial officer. Raises and bonus levels for these three positions are typically more generous than in other positions. But next year, the CEO will only get a 5% raise and the creative director and chief financial officer, 4% each; 32% to 48% of agencies will not give raises for these positions.

Going into 2001, the CEO got a 10% raise and the creative director and chief financial officer, 7% each.

Bonuses often deferred
Likewise, bonuses for these three positions will be nearly halved in 2002 vs. 2001 as CEOs pack off a bonus equivalent to 19% of base pay, and the creative directors and chief financial officers, 11% and 10% respectively. But again, just over half the agencies won't deliver bonuses to these three positions. Anecdotal evidence from participating agencies that are awarding raises and bonuses further indicates many will defer their distribution until at least the end of the first quarter of 2002 when they can get a better read on the economy's recovery. If slow, this discretionary income may stay in agency coffers.

Raises are tied to fixed costs. Lower raises typically mean lower profits. Not only are agencies reducing costs by cutting raises, they are downsizing to cut overhead. The average agency in the survey had 22 employees in 2001 vs. 26.2 in 2000. At no position was the average higher in 2001.

Three positions -- creative director, art director and account exec -- were particularly affected by heavy downsizing. There were 1.19 creative directors in the average reporting agency in 2001, down from 1.88 in 2000; there were 3.61 account directors per agency in 2001 vs. 4.24 in the previous year; the average agency employed 6.38 account execs in 2001, off from 7.77 in 2000. This decline in headcount should largely stop in 2002, say the agencies, because 47% of them will boost headcounts in 2002, 40.2% keep them stable and only 12.7% make further cuts.

Bonuses, which often come from a percentage of the profit pool, get squeezed when profits head south. Agencies have changed little in the way they administer bonuses. About 47% of shops the last two years award them based on a predetermined formula, most often profitability and to a lesser extent, operational goals.

Just as a reduction in agency growth has had

a deleterious effect on raises and bonuses this year, a more upbeat 2002 registered by the 262 agencies promises to restore vitality to these salary enhancements. Next year, 68% of agencies expect growth in gross income, with the level of growth predicted at 10% or more by 39% of those agencies.

Eastern agencies more optimistic
Agencies in the East are more optimistic about growth in gross income than other regions. Sixty-nine percent of the East shops expect an increase and 49% of those believe it will be as high as 10%-plus, healthiest tally among the regions. This compares with 53% of East agencies that grew in 2001 and 41% of them that advanced 10%-plus in gross income.

The West, hit particularly hard last year by the decline in the dot-com market, seems to wallow in an ad slough of despond. Sixty-five percent of agencies in the West have declined in gross income this year, and while 67% of West agencies anticipate growth in gross income in 2002, 60% of those peg it at 4.9% or less.

The employment outlook, given the guarded approach to agency economic growth, is most upbeat in the Midwest and South, where 54% of agencies anticipate boosting staffing levels in 2002. The East and West are far less sanguine, with 36% and 35% of agencies projecting headcount growth. From 46% to 47% of agencies in those two regions say there will be no change in staffing count.

According to 65% to 70% of agencies in the Midwest and South, the cause for the anticipated growth in those areas is expansion of existing business says 65% to 70% of agencies in those regions.

Survey sample improves
The survey, prepared by Ad Age and market research company Irwin Broh Associates, drew 262 responses, a 7.7% response rate from questionnaires mailed to agency executives prior-year data is based on 201 responses from a separate set of agencies.

The increase in returns improved the sample tolerance range (for 95% confidence level) by an average of $250 for each non-strategic management position (see chart on Page S-1) in 2001 over 2000. The 1,672 account execs in the surveyed agencies are likely to receive base pay within $960 of the $48,000 average base, based on a sample tolerance range of 2% to achieve 95% confidence level. Chief technology officer carries the highest tolerance level of 10% because of the relatively small base of that title, placing average pay within $7,500 of $75,000 to achieve the 95% confidence zone.

The survey represents 5,763 agency employees in 11 positions, with men accounting for 51.6% of those employed. However, in the top five salaried positions, men outnumber women 2.76 to 1, the same ratio as the previous survey. This fact contributes to the pay differential that favors men in this industry. Among the rank-and-file, women outnumbered men 1.21 to 1 in these agencies.

There is no perceived gender bias in layoffs. The ratio of men to women remained essentially the same with 11.3 men and 10.7 women in the average agency in this report vs. 13.5 men and 12.7 women per agency in 2000.

Women paid less
For the six rank-and-file positions of account director, copywriter, media director, management supervisor, lead account planner and account exec, women's pay is less than men's. Women fare best in agencies with $3.7 million to $7.5 million in gross income where men average a collective 1.07 more in those six positions than women. The Midwest offers the best pay parity for those six positions taken as a whole. The pay differential in that region is only 1.08 in favor of men.

Pay differential for women in these six positions is widest in the smallest agencies (less than $3.6 million gross income) and largest agencies ($15.1 million or more). In both cases, men are paid 1.19 times more per same-level position. The East offers the most pronounced pay spread of 1.32 in favor of men in those rank-and-file positions.

Pay spreads for the South, Midwest and West are 1.08, 1.11 and 1.14, respectively. Agency executives are generally at a loss as to why men receive higher pay, discarding as bromides gender issues such as mobility, longevity and the old boy network.

Most employees (44%) are in agencies of less than $3.6 million in gross income, 29% in agencies size $3.6 million-$7.5 million; 14% in agencies size $7.6 million-$15 million and 13% in agencies above $15 million. The Midwest provides the greatest number of responses at 36%, followed by 24% from the South, 22% from the East and 18% from the West. This spread is similar to the survey in 2000.

Three of every five agencies are traditional agencies; business-to-business agencies represent 7%-24% of returns (7% in the West and 24% in the Midwest); depending on the region, direct response and sales promotion agencies represent 2%-10% of agencies; Hispanic shops account for 3% of all responses but 12% of all returns from the South.

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