Growing agencies eye 4%-6% raises

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An upswing in agency revenue in 2006, stronger compensation packages including better raises and bonuses than employees got going into this year and stepped-up hiring are on the immediate horizon, according to the 14th annual Advertising Age Salary Survey.

That horizon, too, will likely contain the persistent elements of agency life: Higher salaries in the East, the loss of the bonus as a "given" and a gender gap in which there are fewer women than men in management roles and less pay for women than men.

What won't appear in 2006 is the "future" agency-new media relationship, an area of the business that continues to challenge agencies: "We're all clamoring to get there [that future] at the same time, but none of us are there yet," says Bob Tabor, managing partner at Denver-based agency Thomas Tabor & Drazen.

That journey, according to agency executives, involves finding, hiring and/or training interactive personnel who have skill sets across both traditional and new media platforms such as blogs and cellphones. New media activity is a big reason surveyed agencies expect an average net gain of three persons in 2006 from one each of the past two years.

Without agency revenue gains even online talent would go begging. Surveyed agencies are bullish over next year. Of the 172 agencies in the survey, 85% forecast revenue growth in 2006, with 46% of those pegging growth at 10%-plus, considerably rosier than 71% of agencies who grew in revenue this year, half of those at 10%-plus, and 62% that reported revenue growth in `04, half at 10%-plus.

Raises for 2006 are expected to be 4%-6%, about the same as this time last year. Year-end bonuses will be 3%-7% of based pay for non-management posts, same as in 2004, and 10%-12% for management vs. 4%-9% in 2004. Agencies expect to spend 19% of profits on bonuses this year vs. 14% in 2004.

But even with considerable blue skies looming, agencies aren't uniformly shaking the money tree. Salary freezes were initiated by 22% of the agencies in 2005, better than 32% in 2004. Depending on the position, 38%-49% of staff won't get a bonus vs. 41%- 51% last year. Bonuses have been slow to return since net income took a bath in 2001.

Employment Growth

With headcount and revenue growth directly related, little wonder 79% of shops report they will increase employment in 2006, a much more vocal response than 54% of agencies who reported they gained headcount in 2005.

Interactive is not only crucial to an agency, but in and of itself stimulates agency headcount because it is people-intensive. On a given project, interactive marketing may involve 20 to 30 executions-from short-term microsites to HTML email to brochures-and design must function across all platforms.

Scarcity remains a factor in the interactive sector and a boost to pay. "We're seeing a great demand for programmers and interactive media. And there is a shortage of talent. A person with two to three years experience in this area can easily double their pay," says Drew Neisser, president-CEO of Renegade Marketing Group, a New York-based Dentsu agency.

"The talent pool for interactive has shrunk in New York," says Frank DeMarco, managing partner at Outside the Box Interactive, New York, who says a lot of talented people left the city after the dot-com crash and subsequent recession.

Those techies have not migrated to Atlanta, either, where interactive marketers are in big demand, says Brent Kuhn, president of local agency BVK, although he believes ongoing intensive training programs will turn that around within two years. In fact, he says, "We're having a dilly of a time getting qualified people in most positions."

The South Rises

That net gain of three employees per shop in 2006 won't be evenly distributed among regions. The South and East will both record net gains of four employees, the West, 2.5, and the Midwest, just one, according to the survey.

The survey shows highest base pay in 2005 is found in the East and West, the lowest in the South. Yet the South is catching up on many fronts, albeit with a caveat. The survey, distributed in early September, excluded Zip codes in southern Louisiana and the Gulf Coast of Mississippi because of the devastation in those areas from Hurricane Katrina.

That said, for 2006, southern agencies are the most bullish among the regions: 92% of them anticipate revenue growth, and some 39% of those agencies expect 10%-plus growth. Additionally, net employment growth is expected by 82% of southern shops, second only to 85% of agencies in the East, and raises in the South for 2006 are higher on average among all positions than other regions.

The flip side of hurricane devastation is growth. "There's a tremendous influx of money coming into the Gulf Coast now," says Danny Mitchell, chairman-CEO of Godwin Group, Jackson, Miss., "and that will have a positive impact on all business." The South's economy was not strong to begin with in 2005, he says.

For 2005, the West attracted the largest percentage of agencies registering 10%-plus revenue growth and the highest number of agencies whose headcount grew (59%). The West's emerging strengths in 2005 are tied to renewed strength in the hi-tech industry, says Mr. Tabor.

Gender Pay

Still, some things never seem to change. There were more women than men in the survey (50.6%), the case the past two years, and they draw less pay in 12 of 14 positions.

In numbers, women dominate the lower-paying posts from media to account management. As an example, women account executives outnumber men 732 to 287 in the survey. Conversely, men CEOs outpoll women CEOs 161 to 39.

Women only pull higher pay than men as account planners and associate creative directors, the latter possibly a skew because of sample size and the fact men outnumber women three to one. Female associate CD salaries come with a sample error range of 11% vs. 6% for males.

"The men who run these agencies (in the survey) likely got into the business when women weren't in advertising as much as they are now," says Kathy Cornett, chairman of McCormick Co., Amarillo, Texas. "Our numbers just keep rising."