Anatomy of an agency talent crisis

But that never happened. When Impellizzeri graduated from VCU with a degree in creative brand management, she got plenty of job offers, with only one problem: “laughable” salaries. So Impellizzeri, despite always thinking she would end up at an ad agency, turned down all her offers and went instead to a startup that creates strips of tape that light up. “It was the only offer that I felt valued my degree and skills and what I had learned,” she said.

Another VCU grad, who spoke on condition of anonymity because he works at an agency, echoed the statement. “We talk about it and we love it, and we can’t imagine doing anything else,” said this grad, who also has previous agency experience. But: “Salaries are way too low.”

It’s a common refrain. Students from ad schools across the country are trying to break into the ad agency business only to find that salaries are too low and the culture is not what they expected. And it’s not just small agencies. Reputed, creative stalwarts are all the same. As another portfolio school grad put it, “They think they can just do that: They can take advantage of us.”

There is a tremendous talent crunch in the agency world. While not a very new problem — three years ago, WPP chief Martin Sorrell had called the talent situation “criminal” — now more than ever, agency executives, recruiters and students say the system is broken. Salaries are low, driving away candidates. When there is work to go around, it’s either too temporary or too high-level for the applicant pool. Talent is such a hot topic that Unilever CMO Keith Weed devoted a large part of his Cannes main stage presentation this year to the brewing war for talent between brands and agencies.

And if Impellizzeri and her peers are any indication, it’s a war that agencies are poised to lose.

Agencies are foremost a human business, with people as their biggest resource. If the best people don’t want to come work for the industry, it will have far-reaching ramifications on agency innovation, client services and work.

“I believe we’ve gotten into a weird place when it comes to talent,” conceded Luis DeAnda, president at TBWA/Chiat/Day Los Angeles. “We’ve perpetuated an image within ourselves that we’re cutthroat. We haven’t reached out in a positive way that gives [young people] a curiosity or excitement about stepping in.”

Andrew Benett, global CEO at Havas Worldwide and Havas Creative Group, calls the current situation a “talent crisis” that affects every single person in the business. “I don’t think we spend enough time building, defining and maintaining our cultures,” he said. “Roughly 60 percent of our agency cost structure is our people, yet we spend a disproportionately low amount of money on talent management. How can you not invest in our infrastructure?” DeAnda agrees: “You need to have a culture. That’s our big downfall.”

Show me the money
The issue, which has been percolating since the early 2000s, has been exacerbated by the recession. Most agencies, trying to trim costs, cut human resources and talent functions, said Benett. That tendency led to a salary gap that widens to this day.

The 4A’s annual talent survey this summer found that the numbers were, as Impellizzeri found them, laughably low: $25,000 for assistant account executive (a number unchanged since 2007) and $28,000 for an assistant media planner. Most entry-level salaries, found the survey, were between $25,000 and $35,000 — “unbelievably” low, according to the 4A’s, especially compared with what other companies were paying. At the other end of the spectrum, for the first time ever, a seven-figure salary was reported in the 2014 4A’s salary survey — a chief creative director position making $1 million, base.

“It’s basic economics,” said Patti Clifford, chief talent officer at Havas Worldwide. “We have put ourselves in a position where we get second-tier talent simply based on money.” Clifford said that even if agencies were to get the “environmental things” right — pool tables, nap rooms, snazzy workspaces — people still know they simply can’t live in New York City on $35,000 a year.

Adding to the problem is that there is no shortage of work in competing industries. Starting salaries at tech firms like Adobe, Google and Microsoft, are in the $80,000 to $90,000 range, according to the 4A’s survey. An agency president told Digiday that in the last year alone, he has seen 15 of his brightest millennial employees leave the shop and go to Google, Facebook or Apple to work in graphic design, creative or user experience.

One perk that often lures those people away is stock options. Apple, for example, may pay just a little more in salary but offers extremely lucrative stock options. (According to a survey of VCU Brandcenter alumni last year, only 24 percent of grads got stock options.) Benett said it’s a “hyper-intensive competitive situation,” the likes of which he has never seen in his career. “The byproduct of all of this is that everyone is just focused on delivering day-in and day-out results just for the bottom line.”

There are also the intangible benefits: Tech companies, overall, executives say, have done a better job creating a warmer culture. The assumption there is that once you land the job, you’ll be taken care of — like family. Agency employees, on the other hand, report that they feel like they never stop fighting — for clients, for assignments, for accolades — even after they land the job.

Lori Senecal, president and CEO of the MDC Partner Network, said that in an ideal world, the talent would flow in both directions. “If you look at it another way, there is an expanded pool of talent, and we’re introducing the agency option to new kinds of people.” And, to combat the low salaries, Senecal said she’ll “make it an experience that will address their emotional needs and their needs to be challenged and fulfilled.”

The reasons for low agency salaries vary. 4A’s CEO Nancy Hill caused a bit of a stir in ad circles recently with a recent op-ed that suggested, in part, that clients were to blame: payment timelines that were stretched thin, ineffective incentive plans and other fee-structure issues create an environment where agencies simply can’t afford to pay their entry-level talent what they deserve. “We keep agreeing to it,” said Hill. “It has a bad effect.”

“The benchmarks are in a place where we can’t raise our salaries,” Hill told Digiday. “It’s a ripple effect.” She told the story of one agency CEO who tried to raise starting salaries from $35,000 to $50,000 a year, but also then, in the process had to raise the salaries of everyone in the middle as well.

When Hill talks about benchmarks, she’s talking about contracts that let agencies, conceivably, charge much more money to a client if a senior person is on the brand team. That creates a real balancing problem between the more junior people and senior people — a gap that’s hard to bridge.

TBWA’s DeAnda is doing his part. Since he ascended to the top position in the Los Angeles company in April, he said he is taking a long hard look at how the model of salaries works. “We don’t need to overinvest in the middle instead of paying people at the bottom better,” he said. “We need to be thinking about what we are and who we are as a company.”

Other executives say the problem is that the ad industry has no sense of community. As shops compete against each other on price, fees are driven down in a “race to the bottom,” as one chief creative officer put it.

“It’s basic economics, too much supply,” said Pat Lafferty, CEO of BBH North America. “There is always an agency willing to work for less.”

Benett of Havas says the industry has always had what he calls the “shoemaker’s son” syndrome. “You see it everywhere. The websites we build for clients are better than our own. The branding we do for others is better than our own. That kind of thinking touches how we think about our people.”

The freelance economy
Exacerbating all of this is the fact that more people going freelance than ever before. There are fewer big agency-of-record assignments, and a lot of project-based work.

At major advertisers like Mondelez, the agency-of-record model is waning, replaced by multi-agency teams that work on specific brands for specific projects. As Dana Anderson, CMO at Mondelez, said in an op-ed in the Wall Street Journal earlier this year, she didn’t consider the AOR model a “pathway to Oz” any longer. This is due in part to fragmentation of media and, in part, to the proliferation of non-agency companies — production houses, social media companies, entertainment providers, content shops — as partners.

This change means agencies can’t keep a steady staff number. Instead, headcount will wax and wane depending on what is going on, creating a demand for freelance — or at least flexible — talent. It’s a trend reflected in the wider workforce: a report in September from the Freelancers Union found that 53 million Americans, or 34 percent were freelancers.

Sarah Hofstetter, CEO at Dentsu’s 360i, said that while there are more people getting into freelancing, it isn’t necessarily something she prefers. “I would much prefer to have people invested in agencies than a project,” she said. “That’s how I work with clients. We want to develop tight-knit, long-lasting partnerships with clients.”

That said, freelancing can also be an attractive career option. “You get variety and diversity, you don’t get locked in on an account or agency,” said Clifford. Hofstetter calls it the “try before you buy” approach. The problem is many don’t buy, although 360i will hire freelancers and make them full-time when the chemistry is right.

Ashley Sommerdahl, director of student affairs and industry outreach at VCU Brandcenter found in the course of an audit last year that there were a lot more freelance alumni, and she was getting emails from recruiters looking for freelancers. The problem is there is no well-thought-out method of finding freelancers. There are one-off sites, like Working Not Working, created by former agency creatives that lets freelancers create profiles featuring references and experience. At VC, Sommerdahl created her own site to help people find freelancers.

But costs can be prohibitive. The freelancers with more experience and talent can command upwards of $1,000 a day, according to agency executives. And if you’re hiring them for longer projects, new federal regulations require HR departments to count hours and pay benefits for permalancers.

‘Unhireable’
But then, not every freelancer is experienced and talented. Digital agencies are facing a little bit of a different problem from full-service shops. Where traditional agencies worry about attracting the right kind of talent given other, more attractive options out there, digital shops are finding that when they do get applicants, they tend to not be prepared for the job itself.

Eric Johnson, CEO of Ignited and instructor at Los Angeles’ mschool, part of the Loyola Marymount University, said ad schools are still teaching older textbooks. “In your typical ad degree, professors are so out of the mix,” he said. Applicants don’t learn the right digital skills they need to actually get hired, so agencies either hire mediocre candidates or fight over a shrinking pool of digitally savvy students.

Take Huge. The Brooklyn-based shop gets on average about 40,000 applications each year, and most of them are are “unhireable,” according to exec creative director Jon Jackson. “They can see having a future here,” said Jackson. “They want to be digitally savvy. They get to work across platforms and products, and we’ve adapted better than the traditional agencies out there.” Jackson says that because digital budgets are increasing, the agency is able to pay people fairly and give raises often. “The problem is there aren’t many people I want to hire.”

At 360i, Hofstetter said the holy grail is finding people who balance great digital with a solid understanding of marketing. “We have to do serious due diligence,” she said. “One thing we need to do as an industry is work in partnership with schools to make sure curriculums are updated for the digital age,” she said. To that end, 360i has an internship program with Miami Ad School. “The ones who are the best are the ones who have real experience at agencies,” she said. “The problem sometimes with hiring people straight out of school is that I don’t want them making mistakes on my dime.”

Winston Binch, chief digital officer at Deutsch Los Angeles, and founder at Boulder Digital Works, said that was the reason he had the idea to start a digitally focused portfolio school in Colorado. “In 2008, I saw kids coming out of ad programs completely ill-equipped for life at agencies.” People would come in to shops, then leave within a year because they just couldn’t hack it. BDW, Binch says, tries to teach tech-first and integrate people into different ad disciplines from day one. Designers learn front-end development, and everyone can code.

According to most executives, the way to stop people from leaving the business in droves and to attract good employees was to make talent management a priority for the agency — above even client services. This means making employees feel like they came first, offering them opportunities to advance and training older bosses to provide concrete, constructive feedback. “It’s easy to get the headline and PR around innovative perks, but the reality is, you need to manage the plumbing,” said Benett. “Are people’s performance reviews happening on time? Do they have career plans? Are you helping them with long-term planning? We need core measures.”

“The No. 1 reason people leave a company is when they feel managers aren’t looking out for them,” said Hofstetter. “So invest in that significantly. There’s more to it than basic perks. Everyone expects free beer.”