Why agencies are quietly laying off mid-level and senior employees

Agency employees who survived last year’s wave of layoffs are once again holding their breath as cutbacks resume. Among agencies reducing staff in January: Interpublic Group of Cos.’ R/GA and Huge; WPP’s Ogilvy and Grey; Havas; and Stagwell’s Anomaly. Independent Mother also recently laid off some staff after losing Target, one of its longest-standing and largest clients. There are some common threads cited as reasons for the constant drip-drip of layoffs. Some blame shrinking client budgets and the shift to project work, which makes it harder to plan than for retainer work. With projects, shops are forced to staff up or down depending on client needs. Whatever the cause, the rising tide of layoffs is causing unease among employees at ad agencies. One former holding company agency executive laid off last summer as part of what she called “rolling layoffs” worried about the possibility of being cut months before it happened. As of this writing, she is still looking for a job. “It’s been challenging,” the person said. Tracking layoffs and budget cuts How brands and agencies are bracing for a recession Click here Huge did not return requests for comment, while Grey, Ogilvy and Havas declined to comment. One person close to Ogilvy said those layoffs were “limited” to ensure the agency can properly invest where it needs, without disclosing more. In an interview this week, WPP CEO Mark Read said “there will unfortunately be some redundancies” as the holding company puts in place its plan to save $221 million via what the company called “efficiency opportunities” across its back office and other parts of the business. “We’re not going to go into details on specific numbers of people at this point,” Read said. Anomaly Founding Partner and Executive Chairman Carl Johnson said, “Can confirm a small group of people were let go in the context of a restructure that will see people joining as well as leaving.” An R/GA spokesperson said the agency’s January layoffs were part of a restructuring initiated last year, but declined to say how many people were affected. This was at least the seventh round of layoffs at the agency in the past four years that Ad Age has tracked; it cut 15% of U.S. staff last April. “Last year we began an intentional restructuring to be more streamlined and nimble in our approach to client work. Our U.S. and LATAM teams are being consolidated into one Americas business unit, which formally implements the final component of our regional model,” the R/GA spokesperson said in a statement. Also read: Ad agencies are restructuring Behind the layoffs While news of layoffs continues to circulate, the overall industry has been growing. Employment in advertising, PR and related services rose by 1,900 jobs in December, ending 2023 with staffing at an all-time high, Ad Age reported last month. The U.S. government’s next jobs report is set to be issued on Friday. “Agencies are being prudent with what promises to be a volatile year without a lot of foresight from marketers,” said Greg Paull, co-founder and principal of consultancy R3. “This is coupled with a lot of active reviews making predicting growth a challenge.” Client cutbacks in 2023 forced agencies to be cost-conscious and “search for efficiencies,” said Sasha Martens, president of industry headhunting firm Sasha the Mensch. Many of the recent layoffs, many of which were not publicized, are “still a spillover from the previous year.” “We continue to hear of challenges for some agencies regarding the ability of marketers to commit beyond a short-term view and that creates instability for some as they manage costs. An increase in project-based work vs. retainer reinforces the challenges of forecasting and planning for long-term needs. As a reminder, most agency costs (~75%) are people related,” 4A’s CEO and President Marla Kaplowitz wrote in an email. Others argued that agencies have created this situation by going on hiring sprees after COVID-related lockdowns forced them to make cuts, which they now can’t sustain. “Like the tech industry, advertising went on a hiring binge during the last two years without rethinking their hiring and talent management strategies and processes,” said Lauren Tucker, founder and CEO of inclusion management firm Do What Matters. Tucker said there is a disconnect between the different teams at agencies that should be allocating resources to hiring. She said middle managers are creating staffing plans without proper managerial training, “human resource leaders are left scrambling to ‘fill orders,’” and financial leaders “are rarely integrated into these processes after the initial financial analysis.” This mismanagement “results in this frantic cycle of hiring and layoffs that keep agencies from providing the long-term, higher value of business strategy and innovation clients seek,” Tucker said. Also read: Inside the brand-agency relationship Holding companies lead the pack The people interviewed for this story said that, aside from a few examples of independents laying off staff, such as Mother having to cut employees after losing Target, most of the job losses have been concentrated within holding companies. “It seems that these layoffs are predominantly occurring within holding company agencies, underscoring the pressure they face to tighten their belts and meet the demands of Wall Street,” said Tony Stanol, president of industry recruiting firm Global Recruiters of Sarasota. “In contrast, independent agencies seem to be navigating these challenges with more flexibility, able to invest in both talent and resources without the constraints of external stakeholders.” Layoffs are inevitable given the history of the agency business model, said Michael Farmer, author of the 2015 book “Madison Avenue Manslaughter: An Inside View of Fee-Cutting Clients, Profit-Hungry Owners and Declining Ad Agencies.” “Between 1985 and 2005, almost every creative agency had surplus resources—more people to do the work than they really needed,” Farmer said, noting that ad moguls began buying up these overstaffed agencies, taking resources out, and forming holding companies. The strategy was to downsize, grow margins, and continue to buy. By 2005, agencies didn’t have surplus resources, but they continued to operate like this, Farmer said. “Holding companies got used to that 20-year strategy: cost reduction as a way to increase margins,” he said. “The industry is generally still stuck there. Every agency starts downsizing to make their numbers.” Creative agencies are particularly pressured as they lag in performance to more profitable parts of the business, including media and consulting. The days are gone when agencies need 1,000-person creative departments, said one executive, who now works for a consultancy and previously worked at an agency. The executive spoke on condition of anonymity because he was not authorized to speak on the record. “They need that scale for technology and media,” the consultancy executive said, noting how most marketers want to hire small independent creative shops on a project basis rather than big legacy agencies. He said that the days of lasting agency/client relationships are long gone. “There are [fewer] clients that believe in long-term agency partnership,” he said. “It’s an older concept. It’s amazing when clients [stick with one agency]. It’s just not the way the world is now.” COVID-related lockdowns that led to a largely remote talent force also “killed” a lot of legacy creative brands, he added. “Who cares about a 30-year agency?” Lindsey Slaby, founder of brand consultancy Sunday Dinner, said it’s tough for clients to hire the right creative shop—they either are too small and not scaled enough to handle a significant account, or they are a massive 1,000-person agency, which, she said, “becomes less personalized as a relationship.” She also faults the mentality of agency leaders for their financial pressures, saying many are out of new ideas. “We are seeing out-of-touch leadership that is still chasing work of the past that was fun, easy to make and built up their own portfolios,” Slaby said. She cited as an example, agencies still reference in new pitches today the BMW Films work that initially began as “The Hire” in 2001. “If people bring this up one more time!” she said, noting that the reference is brought up regularly by shops even though it was over 20 years ago. (The automaker has resurrected the film multiple times.) Higher-level jobs at risk It’s a myth that most of the agency layoffs are coming from junior-level staffers. Many of the recent layoffs have actually impacted mid- and senior-level agency employees, according to people interviewed for this story. “I’m surprised about how senior several of these people are,” Stanol said. “Two I’ve talked to in the past few weeks [were] in the C-suite and two are [executive VPs]. I’ve also been approached by mid-level candidates such as directors.” Not only are these layoffs increasing stress over who could be cut next, the employees that remain are being overworked to make up for what some describe as skeleton crews that are left. Stanol said he’s seeing agencies “asking current employees to do more with less.” Agency financial pressures also could take a toll on compensation, Martens said. If a shop does not undergo layoffs, it could opt to lower salaries for mid-tier talent. “Companies are going to keep squeezing and trying to get more out of people either with fewer people or lower salaries,” he said. “Ultimately this is going to put price pressure on salaries for the mid-tier talent.” Tucker said the layoffs are also exacerbating the industry’s existing problem with diversity. The most recent agency diversity report from the 4A’s found that representation worsened in some areas of advertising in 2022, particularly at the leadership level. “People of color continue to be disproportionately represented in layoffs, especially in middle management, exposing the myth that the industry is committed to inclusion and diversity,” she said. “When the going gets tough, the not-so-tough leadership tends to hire people who look, act and feel like them.” Contributing: Judann Pollack and Brian Bonilla Top marketers, brands and agency ventures Ad Age Datacenter’s definitive rankings of the biggest U.S. and global advertisers and agency companies Click here

Why agencies are quietly laying off mid-level and senior employees

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