‘It’s brutal’: Junior agency employees feel the squeeze from low margins

Brutal, maybe, but Jamal’s story is not unique.

For agencies squeezed by fee issues, taking on “no-margin” or “low-margin” accounts, or more project work, is a common way out. (It can provide a high upside for shops.) But in an industry where “margins” basically mean people’s salaries, the human cost of this is often junior employees, who are being forced to work longer hours and rarely see any compensation increases.

This is a common side effect of the current crunch in the agency space, said numerous agency executives and junior employees interviewed by Digiday. The average agency markup in the U.S. is between 13 percent and 15 percent. But new deals cropping up are touting no-margins and pay for performance incentives — which means the agency is constantly looking for ways to cut costs, especially at the beginning of the relationship when agencies make little money or even stand to.

But agencies, like other industries such as business consulting, calculate how much to charge clients on a full-time equivalent, or FTE, basis. Agencies have “rate cards” for levels of employees (director levels cost more, manager levels less) and then have a formula based on the assumption that someone will work a certain number of hours per week. The gap between how many hours the employee actually works and what they’re supposed to is the margin.

But in a low-margin or zero-margin contract, agencies are incentivized to save as much money as possible. In order to get the most bang for their buck, agency leadership, said multiple people with knowledge of the matter, will get junior employees to work longer hours on a bigger portfolio of brands. Sometimes procurement will ask for dedicated FTEs, but it’s hard to police that. “It’s a doomsday exercise,” said one former agency executive who recently went client-side. “The agency business essentially is exploitation.”

Michael Duda, managing partner at Bullish and the former CEO of Johannes Leonardo, said that it’s a very common tactic across many industries, not just agencies. Senior people are often benched, and low fees spur agencies to put more junior people on contracts. That often leads, or can lead, to a loss in quality.

An agency search consultant said that clients are often complaining that they’re getting more junior people on staffing plans than they had agreed to.

“Agencies bill at an hourly rate, and the more senior a staffer, the higher the rate,” said a strategist at a holding company-owned agency in New York. “So if a client will only pay a certain amount, you need to staff with the cheapest body.” This strategist said that that means junior people end up working 60, 70 or 80 hours a week and end up “drowning.”

And wages are low in agencies, a well-documented fact that makes this entire process even worse. Ideally, the agency can stand to gain a large upside: If the client does well, incentives can be high. But that upside won’t trickle down to junior employees. Jamal said that after a year of working 75 hours a week, he got a $500 bonus, bringing his total compensation to $41,500.

And Jamal said that the one potential upside — of getting a lot of experience on many accounts — never materialized: “I was drowning in too much work to properly learn or absorb anything,” he said. “I think those junior employees need to opt-in to this type of situation. I wasn’t really given a choice, and I didn’t know enough to say ‘no’ because I didn’t know what I was getting myself into.”

Neither, apparently, do agencies: Another side effect of the squeeze on fees is that there are fewer senior and middle-managers left. “Younger people are being given more to do because senior people’s ranks and middle ranks are thinner,” said Ann Billock of Ark Advisors. “The pressure has been put on everyone really and truly to do more with less.”

“What’s going on is that a lot of clients say they love creativity and all that, but when the contract is signed, it’s all about ‘we’re going to pay you for the time it takes to make something’,” said Duda. “This is the fallout of when clients and agencies don’t trust each other.”