Publicis Groupe is to pay a record €540 million ($578 million) annual bonus pot to staff, but it has kept a lid on its wage bill by “strongly reducing” spend on freelancers by 27% — a drop of €124 million ($133 million).
Annual results for the French agency group showed it held its profit margin at an industry-leading 18%, thanks in part to its strategic decision to slash the use of freelancers.
Publicis has been the best performer of the “big six” agency holding companies since the pandemic. Arthur Sadoun, the chief executive, reported a 6.3% organic increase in net revenues to €13.1 billion ($14 billion) in 2023.
However, the total wage bill rose by only 3.7% to €8.5 billion ($9.1 billion) at the 102,000-strong agency group.
Staff costs for “fixed personnel” rose 6% to 7.53 billion euros ($8.06 billion), which was roughly in line with revenue growth, but freelancer costs fell 27% to €332 million ($355.5 million).
Publicis also increased its annual staff bonus pool by about €40 million ($42.83 million) to a record €540 million ($578 million), which included share-based incentives.
However, the company saved €50 million ($53.54 million) as it made no other exceptional bonus payments. Publicis gave one week’s salary to staff who were not normally eligible for variable remuneration as a special bonus in 2022 to help with the cost of living.
Michel-Alain Proch, the chief financial officer, said its “dynamic management of group resources” and “cost discipline” had allowed the company to “absorb wage inflation” while still paying a record bonus pool.
As a result, the company’s personnel costs as a percentage of net revenues fell in 2023, giving a boost of 60 basis points or 0.6% to the operating margin (see slide from results presentation, pictured below).
The increase in staff costs for “fixed personnel” reduced the margin by 90 basis points, but that was more than offset by lower freelance costs, which added 110 basis points.
The company got a further margin boost of 40 basis points on “incentives” by dropping the special bonus worth one week’s salary.
Overall, the company’s operating margin was flat at 18% as Publicis incurred other expenses, including restructuring costs and an investment in artificial intelligence.
The margin figure did not include the impact of one-off items such as a €203 million ($217.39) charge for a legal settlement with US authorities related to former agency Rosetta and its historic work for opioid manufacturers.
Operating margin is a key metric for investors, who typically value a company on a multiple of its profits. Most of Publicis’ rivals—such as WPP, Omnicom and Interpublic—have a lower margin of between 15% and 16.7%.
Concerted efforts to reduce freelancers
Proch told investors how Publicis has been “strongly reducing” the use of freelancers in a concerted effort over the last 12 months—“as per the plan that I shared with you” at the previous results last February.
Annual spend of €332 million ($355.53 million) in 2023 was down on €456 million ($488.32 million) in 2022 and €392 million ($419.78 million) in 2021.
Leaving aside 2020 when the company slashed freelancer spend to €278 million ($297.70 million) during the worst of the pandemic, its outlay in 2023 was the lowest since 2014, when Publicis was much smaller than it is now.
Sadoun has credited what he calls its “platform organisation”—a unified approach across the group—for driving efficiencies and improving margin.
Publicis has also said Marcel, its company-wide platform, has helped it to prioritise internal resource and move staff between agencies, which has reduced some of the need for freelancers.
Most agency groups maintain some freelance resource because it gives them flexibility to adjust costs quickly if trading conditions change.
There was a surge in demand for talent in 2021 when the ad market bounced back more strongly than expected and many employees quit for new jobs.
“The Great Resignation is done,” Sadoun said at the latest annual results. “The big topic is return to the office.”
More jobs
Revenue growth increased headcount to about 102,000 by the end of 2023, from 96,000 a year earlier.
Publicis recruited a net 3,700 staff, which was “about half the pace of organic growth of the group in 2023”, according to Proch, and the company added a further 1,800 through acquisitions.
Sadoun expects to keep hiring and will recruit a net 1,200 staff in Q1 2024 – a similar rate to Q3 and Q4 2023, after hiring about 600 to 700 in Q1 and Q2 a year ago.
Publicis has forecast revenue growth of between 4% and 5% this year, including in Q1.
Following the annual results, Proch has departed to join the London Stock Exchange Group and Loris Nold, previously EMEA CEO of Publicis Groupe, has taken over as CFO.
Publicis’ share price has soared 60% since the start of 2023, hitting an all-time high of €96 ($102.8) this week after its results, and the company has pulled ahead of rivals to be the world’s most valuable agency group with a stock market capitalisation of €25 billion ($26.7 billion).
(This article first appeared on CampaignLive.com)
