SALARY SURVEY: AS THE ECONOMIC ENGINE PICKS UP SPEED, SO HAS COMPENSATION FOR THE LEANER, BUSIER AD AGENCY EXECUTIVE; PACKAGES TAKE MANY FORMS BUT RAISES ARE EXPECTED TO RUN FROM 6% TO 8%; AND MORE THAN TWO-THIRDS OF AGENCIES EXPECT TO ADD STAFF IN '98

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Ad agency employees can expect another banner year in compensation in 1998, according to the sixth annual survey prepared by accounting firm Altschuler, Melvoin & Glasser for Advertising Age.

Salary increases next year will match almost verbatim the raises presented at the end of last year, and those were the highest in years.

Survey results show bonuses for this year to be several notches higher for most rank-and-file agency positions and stratospheric for chief executive and chief operating officers.

Specifically, raises will hit around 6% for most agency positions and top out at 8% for the CEO -- virtually the same readings as last year's survey except for an additional percentage growth for account execs and senior account execs.

CEO BONUS HITS 47%

Bonuses as a percentage of base pay should hit 8% to 12% for most agency positions, 18% to 36% for administrative echelons and a whopping 47% at the CEO level.

The profile of participating agencies is fairly typical of past studies, although a higher number of agencies (259) returned survey's than last year (203), and the North Central region (34% of responses) is less dominant. By claiming 29% of responses, the Northeast assured that.

Most returns (57%) came from agencies with up to 50 employees and about $7.5 million in gross income (equivalent to $50 million in billings).

TYPICAL OF SIZE

The advertising community draws heavily on shops of this size from coast to coast. In a top-heavy ad community, there are only about 150 agencies out of an estimated 4,000 with greater gross income than $7.5 million. More than 50% of the nation's ad employment is housed in this tier.

This report covers agencies with 10,000 employees (out of an industry of about 170,000) and with a gross income aggregate of $1.9 billion.

Gross income is an agency term for revenue. It is the sum of fee income, media commission and markups on materials and services. Billings represent a volume about 6.67 times gross income.

Salary levels perhaps should be viewed as ranges for better accuracy. For example, the $37,800 salary for account exec more accurately falls in the $35,154 to $40,446 range -- the spread that achieves a 95% confidence level, according to Irwin Broh & Associates, the market research company that tabulated survey results. By contrast, the CEO median salary carries a broader range of $139,700 to $157,500 because of a smaller subset.

Bonuses are becoming less perfunctory. About 40% of the agencies say bonuses now are based on a predetermined formula, with profitability outweighing operational goals 3 to 1 as "the" predetermined formula.

SETTING BONUSES

A larger share of agencies (60%) still say bonuses are not based on predetermined formulas, which begs the question if they are based on performance.

Raises are more rigidly fixed than bonuses, if nothing more than to hold the line on fixed costs. Surveyed shops overwhelmingly schedule raises on an annual basis, although 12.6% set raises every 18 months, a practice more prominent in the Northeast and West than elsewhere.

Employee performance translated into increased billings. About 68% of agencies report a billings increase, ranging from a high of 75% in the North Central to 61% in the West; nationally, billings at 22% of the agencies fell while 10.4% experienced no change.

Generally, billings increases are substantial, with two-thirds of all agencies recording 10% or more growth. Of those registering a decrease (22%), the decline is either a little or a lot. Just under half of those say it slipped 4.9% or less, and just over a third indicate billings plummetted 10% or more.

Of the two-thirds recording billings growth, 60.6% attribute it to stepped-up spending from existing business, while 28% credit expansion of new services and 13.7% cite new clients/new business.

Agency size that shows the most versatility in expanding its business is the $3.7 million to $7.5 million level.

The strong economy and billings growth have kept agencies in a hiring mode in '97 and '98. Growth projections are rosiest for the three tiers below 50 employees: 1-10 persons, 11-30 and 31-50.

MORE HIRING

Of the 85 agencies with 11 to 30 employees, 72 of those agencies will stay at that employment level in '98 but 12 will move a rung higher. Of 62 agencies employing 31-50, 45 will stay put in '98, but 16 will leap into the next tier.

Tandem to such employment "growth" projections is the finding that 68.6% of agencies expect to increase employment in '98, 3.5% will reduce employment and 27.8% will stay the same.

The largest spread between increase and decrease in employment is among agencies in the 51 to 75 employment tier. Some 86.4% of these project an increase, 4.5% a decrease, and 9.1% no change.

Creative and account services both tip the scales among agency departments expecting higher employment, each to undergo expansion in 60% of the agencies. Media is rationalized to the bone. Only 33% of agencies plan employment growth in media, although 63% anticipate no change in that department's employment; only 4% plan a decrease.

COMPUTER SAVINGS

Conspiring to hold down employment on the media side is continued computerization and growth of outside media placement services. Media's role has been affected by a fan-like expansion by agencies into non-traditional ad mediums (sales promotion, direct response, etc.) and a shift in the agency remuneration system from commissions to fees.

Fees comprise an average 54% of an agency's total remuneration, followed by media at 25%, and mark-ups on materials and services at 21%.

The male/female split is fairly even, minimizing skews: The survey comprises a pool of 2,415 men and 2,140 women. In numbers, women dominate the lower positions surveyed. Some 63% are employed as media directors, senior account execs or account execs.

The glass ceiling remains a stubborn presence. Women AEs outnumber men 2 to 1 -- the greatest number of women to men at any position -- and their median pay is about $2,600 less, the narrowest gender pay spread among the seven positions. Women outnumber men nearly 1.1 to 1 as senior AEs, and receive $13,000 less; there are 1.9 women per male media director and women receive $10,200 less pay.

Mr. Gaines is a partner and communications industry group chair at AM&G, a U.S. accounting and consulting organization. R. Craig Endicott, survey editor,

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