Are entry level salaries the most affected when agencies get remunerated poorly and margins suffer?
Srinivasan K Swamy, CMD, RK Swamy BBDO: At one level, the entry level salaries have not moved up in agencies. This is also because the students from top business schools are not seeing this as an important port of call for jobs. And students from second/third tier institutes do not have too many job options that they can choose from. In the competitive job market, agencies are able to get away by paying lesser (but competitive amounts) for ‘lesser’ talent.
Lloyd Mathias, CMO (PPS), HP India: Entry level talent in agencies over the last couple of years has seen a clear deterioration. One reason for the deterioration is the fact that you know agencies do not pay top dollar; they do not pay very good salaries. Why agencies do not pay good salaries could be due to various factors. I wouldn’t pin it down entirely to a bad remuneration structure because agencies find interesting ways of paying bonuses. But yes, the overall level of pay scales at lower levels in the agency clearly is creating a talent deficit. So, on that point I have no doubt.
If yes, is that in turn leading to quality talent staying away from advertising? If not, is it leading to exits from agencies to other businesses at the mid and senior levels?
SS: All industries are struggling to find talent. This is not unique to advertising industry. Actually we seem to be the source of talent for many industries if you see how our industry people are poached by others. Therefore to say that we don’t attract talent seems unjustified.
There are less positions in the top when people want to move up. When promotions are delayed, you will see people migrating to areas where growth is available. This is a natural phenomenon across all businesses and industries.
LM: Yes, there is a talent deficit and some part of it is largely because agencies at entry level are not able to attract very good talent and part of that is because agencies do not pay enough. People prefer to go into banks, consultancies and other marketing organisations. That is one of the challenges.
Do clients realise that the talent they get to work on their brands will suffer, if agencies are not in good financial health?
SS: At one level it is a ‘chicken or the egg first’ story. You have less talent and therefore we will pay you less; or you pay us more and we will provide you better talent. On balance, advertisers want to be fair in their compensation practices since they do have vested interest in their agencies providing them top class service. All mature advertisers know that it is only ‘advertising’ that can provide disproportionate returns on their investments like no other.
LM: Clients look at agencies as business partners; they are not in the business of managing the agency’s financials. Clearly, large agencies today make good money. WPP, Publicis, Omnicom, are very large agencies so I think that managing them is purely in their hands. Agencies have to recognise how to attract better talent and whether money is the key driver as against other factors. That’s what agencies need to decide.
Relatively, larger agencies today have recognised that there is a fair amount of talent deficit and they are working towards correcting it. The solution to that is not just clients paying more money. Agency commissions have evolved. When an agency adds value, clients are more than happy working with them. Today, clients are recognising that you need smart people on the agency side to give you much better output and quality.
If you agree that this is a loop, what would you suggest is the way out of it?
SS: As I had said, all seasoned advertisers know that reasonable compensation to agencies is a must to build their brands and their businesses. Some new entrants or less professional advertisers or some with trading mental outlook may short-change their agencies for a while till they realise that this is hurting them in the long run. Industry bodies like ISA and AAAI as well as media organisations like this magazine have a role to play in educating the various constituents that it is important to not cut the hand that feeds them. Agencies play a vital role in building brands. And they have the same cost structure and are part of the same ecosystem as the advertisers.
LM: Twenty years ago, some of the brighter people from business schools went into advertising. Today, the brightest minds don’t necessary get into advertising. Clients will certainly bargain to get better value as they are answerable to shareholders. Smarter clients are beginning to recognise that they need to help agencies as partners to ensure that they have good people working on their brands. That does not mean the client will open their purse strings and pay more in commissions. Instead, they will work together to identify good talent because there is a significant belief that good people on the agency side help you get create value and better work on your brand.
For the way forward, the agencies need to pay better at entry levels and do what it takes to attract better talent. Agencies have to look at their internal cost mechanisms and look at other efficiency drivers.