Clients dictate unkindest cuts

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About 10 years ago, Marvin Sloves, then chairman of agency Scali, McCabe, Sloves, told me about a layoff that his agency was contemplating. We were talking about who the layoffs might and might not affect when a specific name came up. "Why, I wouldn't let him go if he were about the last person here. He has worked here for well over 20 years and deserves our loyalty," Marvin said. It was an incredibly humane statement and spoke well about the agency and its principles (and principals!). We aren't seeing too much of that these days. The current round of layoffs has cut deeply without regard to past or, in some cases, current performance.

In so many cases, employees have become a fungible asset, one employee having no more value than another. During this time of stress, economic uncertainty and diminished budgets, companies have taken on a "rent-an-employee" attitude. The personal equity that is built by loyalty, past performance and talent counts for very little. It seems that the bottom line has overwhelmed those other considerations.

Once upon a time, if a client cut a budget, the good people assigned to that business did not have to worry about their jobs. They knew that they would be rotated and moved to another opportunity elsewhere, probably replacing a poorly performing employee on another assignment. That doesn't happen much any more.

The downside of the fee system of agency compensation is that, to a great extent, clients are now running their advertising agencies. Often, fees are paid for a specific staffing plan. This, in effect, allows clients to dictate who will or will not work on their business. In fact, more and more clients even interview, or at the very least are consulted about, prospective agency hires for their accounts. And while agency management usually positions these interviews as a "courtesy," they are tantamount to giving the client tacit approval of pro-spective hiring.

This situation also works in the reverse when budgets are cut. When an account cuts its budget and staff cuts are made, it is often difficult to rotate people from one account to another. If a budget cut necessitates that a manager be eliminated, once upon a time this would enable an agency to evaluate all the employees at the level where the staff cuts are being made and, subsequently, to eliminate the weakest link on another piece of business.

Under today's fee system, when a client is happy with the performance of someone on its account it is more expeditious for agency management to leave an underperforming person in place than it is to explain to the client why it wants to remove a person with whom the client is comfortable. (Does any client really want to know that the person they perceive to be good is actually a poor performer?)

While there is no question that advertising budgets are down, necessitating staff cutting, profit pressures have exacerbated the situation. The publicly held companies, in order to meet shareholder expectations, are demanding a level of pretax performance that simply cannot be met. The result is a kind of "slash and burn" attitude on the part of agencies toward their employees, both good and bad, both high-performing and weak.

It is an easier management task to simply make staffing cuts by account than to re-evaluate the entire agency. Hence, a lot of good people are walking the street simply because their account cut its budget. I receive calls every day from really good people who simply expect to be fired because their account has cut its budget.

This should be a business where talent and ability far exceed temporary economic necessity or management expediency. All too many talented executives are walking the street for the wrong reasons.

Mr. Gumbinner is president, Gumbinner Co., New York, an executive search firm serving the ad industry.

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