As agencies look for ways to survive amid the economic downturn and uncertainty ahead due to the coronavirus, they are now among the companies currently exploring whether to layoff or furlough employees.
Furloughs can be a little more attractive for agencies, as it allows them to retain staff while reducing overhead and save cash. With agencies being a people business, keeping talent on staff while mitigating balance sheet risk is much more attractive than losing that talent altogether with a layoff.
“A lot of clients are postponing projects, not canceling them, so furloughs help agencies navigate this fallow period whilst also setting everyone up for work again on the other side of this,” said one agency CEO who requested anonymity. “Agencies imagine that they’ll need those employees again when this is all over.”
There is no one-size-fits-all. The definition of a furlough varies by state, as labor laws are different from California to New York to Washington and so forth, but generally a furlough is a leave of absence of some kind. For some, a furlough could mean their agency has asked them to use their paid leave now. For others, it could be that they’re on unpaid leave but they’re able to retain medical benefits.
How agencies employ a furlough will differ based on the agency and state laws but industry experts say that with a furlough it’s likely agencies are more optimistic about the ability to have that employee return to full-time work in the near future. One agency exec shared that he’s been in conversation with other agency heads who are exploring the possibility of staff furloughs for that very reason.
“Agencies are trying to be as people first as they possibly can,” said Nancy Hill, founder of Media Sherpas and former 4A’s president. “We already had a war for talent going on before all this started. The last thing you want to do is lose really good people that you recruited and to never be able to get them back. You want to do everything you can to retain that top talent during this crisis.”
To deal with the tough months ahead, agencies are exploring all their options including asking employees to take paid time off now or to do shortened workweeks (i.e. a four-day work week and 80% of their salary). With paid time off in particular, agencies exploring that option say they believe that when the coronavirus crisis is over it will likely be too busy to have staff take time off so it makes sense to have staff use that time now rather than lose it or lay them off. The hope is that by making these temporary changes via some version of a furlough agencies can retain their talent until normal work levels resume later in the year.
The anticipation of a return to some kind of normalcy later in the year is part of what makes this crisis is different from previous crises. Depending on how the country responds, the outbreak could potentially come to an end in two months as it nearly has in China where people are starting to return to work. Should that be the case, agencies will then be able to bring back the staff they had and get to back to work quickly for clients.
The furlough could also be a better option for some employees who worry about joining the thousands of unemployed Americans waiting for unemployment to kick in. On Thursday, the Department of Labor released the latest unemployment numbers, reporting that 3.3 million Americans filed for unemployment last week. Those that are laid off will likely have a difficult time finding work as agencies are put hiring freezes in place and reduce the amount of freelancers they work with, according to experts. That said, there could be work at in-house agencies as brands recognize the ability to scoop up top talent that’s suddenly available, said Jay Pattisall, principal analyst at Forrester.
Agencies that opt for layoffs are less optimistic about the work they’ve lost coming back anytime soon. That doesn’t mean agency employees who are laid off won’t be brought back by those agencies but it’s less certain than a furlough. Some agency specialties are more likely to see layoffs than others. “There’s a part of workforce decimated by this,” said Hill. “The work for experiential agencies is probably not going to come back soon.” Giant Spoon, an agency known for its experiential work, recently laid of 20% of its workforce, per Ad Age.
Experiential agencies aren’t alone in feeling the squeeze. Media and creative agencies are also grappling with a pause in clients’ advertising spending now. While the talent within agencies are one of the biggest assets, they are also one of the biggest costs. Earlier this month, Anomaly laid off 22 employees and reduced pay for some of its staff, citing the coronavirus as the cause. Holding companies like IPG and Publicis Groupe are also exploring cost reduction methods. “We have multiple cost levers to align expenses with changes in revenue and our operators are executing as appropriate on both the revenue and expense sides,” said Michael Roth, chairman and CEO of IPG in the company’s public statement on the impact of coronavirus to its business. Publicis Groupe also released a statement that the company was “rigorously managing operating costs, including the postponement of some expenses in order to get through the current situation.”
Even as some agencies opt for furloughs, layoffs are expected. “When agencies encounter recessionary marketing conditions they tend to use layoffs as a mechanism to offset revenue losses,” said Pattisall. “It will likely be no different during this downturn because agencies tend to allow quarter-by-quarter financial considerations dictate operational decisions.” Pattisall added that a furlough could be a difficult option for agencies to use amid the uncertainty of the financial markets and the inability to determine when staff could return.
When asked, agency execs said they are currently focused on retaining talent as best they can looking to avoid layoffs or furloughs. “It’s a very challenging time for talent working in the marketing communications sector, both full time teammates, marketers, brand managers and all the thousands of freelancers whose livelihoods have depended on this industry,” said Scott Goodson, founder and CEO of StrawberryFrog. “We all need to do what we can to secure these positions and our teammates.”
“People are very concerned about their staff,” said Hill. “They are doing the best they can to preserve workforce, staff and culture in the midst of all this.”
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