Ad agencies blind to talent pay in the rush for size and profits

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Do you think there's a connection between a big successful advertising agency's ability to hire the best young talent and its incessant drive to become bigger and more profitable? I do, and I think it's a negative one.

The big agencies are intent on driving up margins, and they're simply not willing to do anything that interferes with that process. So if you think the best people make the best ads, maybe the big agencies' failure to lure the best people has something to do with the mediocre state of the agency business these days.

It isn't that they can't afford to increase entry-level pay for top talent. The big agency holding companies are raking in money. Maybe they can't forget that in the old days they didn't have to pay top dollar; bright young people were willing to start off in the mail room working for peanuts just to break into the business.

Those days, of course, are long gone. Agencies are competing with marketers, consultants, dotcoms and other media. And they're not faring very well.

A new study by the American Association of Advertising Agencies indicates how bad the situation has become. The survey, conducted among 92 agencies (including 14 of the top 16), showed entry-level hiring in 1999 was up 21%, but the average starting salary came in at a pretty miserly $24,000.

Entry-level salaries, stated the Four A's human relations committee, "are the single most important barrier to attracting top talent from major colleges and universities."

The good news in all of this is that the big agencies' reluctance to dig into their pockets and pay the going rate for top prospects (even brand new accountants averaged more than $34,000 last year) means smaller agencies can compete with the big guys without going to the extreme of selling out.

Just as the lowliest of National Basketball Association teams can get good fast by winning the top picks in the college draft (go Nets), smaller agencies can out-hustle big ones by paying a few thousand bucks more for outstanding college talent.

Clients may not recognize what's in it for them when their agency holding company acquires yet another agency, but they do recognize great people are what separates one agency from another. They can see the difference in the ads, in the strategy, in the media buys, in the presentations.

Right now, many clients are skeptical about the benefits they can derive from agency consolidation. Cordiant's Michael Bungey observed in last week's issue that "it's very difficult for clients to see benefits in a lot of things that happen lately. I think it is often very easy for owners, management and shareholders to see benefits but perhaps more difficult for clients. I'm not sure that these deals are driven by client demands."

Kenneth I. Chenault, president-CEO of American Express Co., said at the Four A's annual meeting in Bermuda the other week that "I don't think size in itself is the issue. More important than size is the quality of the agency's creative. It's what consumers will respond to and is what energizes an organization."

Mr. Chenault believes the art form of the 21st century will be an assembly of alliances and partnerships. "If our times are transitional, transformational and transitory," he said, "maybe that should describe our approach to partnerships." He added companies might be better off forging alliances they can "get out of -- or repeatedly in and out of." And since great agencies are "specialists at transition," such alliances might make more strategic sense for them than outright acquisitions.

Of course, alliances don't necessarily pump up the bottom line as acquisitions do, even if they are more flexible and responsive to marketplace conditions.

The bottom line, after all is said and done, is driving the advertising agency business above all else. But, as one of our readers wrote us, "If we want to foster and grow great young talent, somebody will need to pay for it."

Who that somebody will be is destined to be one of the great transitions of our bright and promising young century.

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