Talent wars: tech giants are Man City, ad agencies West Ham
Agencies are right to be concerned that they can’t compete for today’s talent with the tech giants. But, if you dig deep into the financials, they’re not as poor as they like to pretend, writes Dominic Mills, who says the best way to redress the balance in their favour is to change the way they get paid.
As the Premier League gets underway, the usual arguments about money are raging. Fresh from the meat market that is the World Cup, the likes of Man City have splashed the cash to bring in the best talent, while the West Hams of this world have dug around in the bargain basement to replenish their squads.
Without using the football analogy, Nancy Hill, chief executive of the 4As (the US equivalent of the IPA), last week used the Wall Street Journal to make, essentially, the same argument: that the ad agencies can’t afford to attract the best talent anymore.
Her evidence: Google, Twitter et al, along with management consultancies like McKinsey and Bain, pay starting salaries 200-300 per cent higher than ad agencies.
Talented graduates, faced with a pile of student debt, are naturally going to take the money; talented footballers, equally so, take the £150-£200,000 a week they can get from Man City rather than the miserly £50-£80,000 a week on offer at West Ham.
Her solution? Clients need to pay agencies more so that they can attract and reward the best talent.
As with the Premier League, it’s not a new argument.
Enter, on the other side of the debate, Bob Liodice, chief executive of the US Association of National Advertisers (the client trade body that is the equivalent of the ISBA).
Besides putting the ball back in the agency court – they’ve been moaning about remuneration for years, he says, so why haven’t they done more to change the equation? – he makes one fascinating point.
Comparing the 2014 estimated sales and earnings growth of some major clients (P&G, Coca-Cola, Pepsi, Ford and GE) with that of the big four agency holding companies, it seems that the ad agencies are doing much better financially than the clients are.
P&G, for example, is expecting sales growth (i.e. revenue) of 2.1 per cent, and earnings growth (i.e. profits) of 5.7 per cent. Omnicom, by comparison, expects sales growth of 4.9 per cent and earnings growth of 8.9 per cent.
In other words, the holding companies are doing better financially than their clients. If we return to the football analogy, then, WPP, Omnicom et al are like Man City, while poor old multinational clients are like West Ham.
Ain’t that a turn up for the books?
And he, sort of, has a point. However, as always with numbers, you have to dig a little deeper, and this is where it gets interesting.
One, the way to make profits grow faster than sales is to cut costs relentlessy and continuously. On this basis, the agency holding companies are clearly doing this faster and harder than clients.
But then they have always screwed tightly down on people costs, since people are their single highest expenditure. Indeed, I know of one global agency network where all – and I mean all, from New York to Romania to Dubai – salary requests go through just one head office individual.
Imagine what that means in real life: stuff just sits in an enormous in-box; it takes an age to get anything done, if it ever happens at all. That, some would say, is world-class cost control.
The second caveat is that Liodice’s figures relate to the holding companies, not to the individual agencies, who are screwed down and often bled dry by their greedy parents.
His argument, therefore, is that holding companies can afford to – and should – pay staff more in their network agencies. And it looks as though they can. But that doesn’t mean it will happen.
Of course, there’s another way to look at this, which is to pay agencies in line with results, or outcomes. Indeed, some of the clients’ anaemic sales growth forecasts might be improved were this the case.
This way, all sides might benefit, and as agencies get better remunerated for their work, so they can gradually increase salaries to attract the best talent.
Again, payment by results (PBR) has been talked about for years. It’s incredibly complicated to do it right; you have to find a way to align both the interests of the agency, and then find a meaningful way to measure the outcomes.
But now there seems to be a real appetite for change on both sides. The World Federation of Advertisers – members include Coca-Cola, Pernod Ricard, Mondelez and Unilever – says 11 per cent of its members already use some form of PBR and 37 per cent are planning to.
Does this help the problem agencies have fighting the talent war? Well, ultimately yes. If nothing less, it redresses the balance. It also makes agencies a more stimulating, exciting place to work.
Next week, I’ll take a closer look at PBR and how it relates to talent.
The sensible and the barking mad
I can’t finish without drawing your attention to a couple of events last week. Both have already been commented on, so all I can do is point you in the right direction.
The first is the decision by WPP trading desk Xaxis to, as it calls it, offer a ‘more flexible alternative‘, but which looks more to me like an admission that its ongoing and thoroughly reprehensible attempts to make its dealings with clients utterly opaque have finally come home to roost.
That old media sage Brian Jacobs has it nicely here.
That’s the sensible bit. Here’s the barking mad: a survey by Tube Mogul proving that viewable ads score better than, er, non-viewable ads. Well, they would, wouldn’t they?
Can you believe it? Sometimes, when I find this sort of thing strange, I think I inhabit a parallel universe.
Anyway, I can’t describe the sheer idiocy of this piece of research better than Bob Hoffmann, the Ad Contrarian, so I’m happy to leave you in his tender hands