Does paying agency staff salaries make you the employer?

Darren Woolley

Darren Woolley is Founder and MD of TrinityP3, an independent strategic marketing management consultancy that assists marketers, advertisers and procurement with agency search and selection, agency engagement and alignment and agency monitoring and benchmarking. With his background as an analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

What happens when a marketer is informed by the CEO of a creative agency that their account management lead has just been presented with a generous employment offer, one which they are certain to take? The question from the marketer then becomes: How do you intend to keep the account lead? They are, after all, an important part of our working and relationship dynamic.

And at what point does it become a step too far for the CEO of the agency to ask the client if they would increase the retainer to match or better the offer, to keep that valued employee?

This is a not a hypothetical situation. It is complicated further by the fact that the agency in question was newly appointed and the account lead specifically requested by the marketer for having specialist experience and detailed knowledge in the field of operations.

In this example, the account lead was also employed by the agency at the premium end of the pay spectrum and this premium was built into the agency retainer. All this history and precedence sets the scene in which the agency, marketer and account lead drama plays out.

Here, we set out several real-life scenarios where the line has blurred, and where marketing leaders need to tread carefully.

The outsourced employees

A marketer was short on staff, with a corporate hold on any new full- or part-time employees. Enter the agency, with an offer to outsource a number of staff to fill the marketing department shortfall. The arrangement included full overhead and profit mark-ups.

The plot thickened when a few months into the agreement, the agency declares that it is providing all staff with an 8 per cent salary increase and adding it to the fee paid by the advertiser for these resources.

With budget cuts looming, the marketer wanted to undertake a review of the agency retainer and the outsourced staff. The agency refused to include the outsourced staff in the review, citing it as a separate agreement, one to which any amendments would result in a withdrawal of the staff.

After three years on board, the marketer faced a dilemma. These staff have become an integral part of the team and taken on skills and expertise that would be hard to replace.

Time to terminate the agency staff

When defending business operations, an incumbent agency called a meeting with the senior marketer, bringing along three of his senior management team – safety in numbers and safety in the relationship one of the management team members had developed with the marketing team over the many years.

Putting their cards clearly on the table, the agency CEO explained that if the agency did not regain the account, it would mean letting go of up to 12 staff members, dependent on what within the account resources are lost.

In his eyes, and to minimise the effects, the CEO thought it better to lose a few senior members as opposed to a higher number of junior staff members. He followed that up with a personal rundown of the contributions these “senior staff” had, going through personal circumstances, the time spent in service and the value these staff members, who he brought to the meeting, had given.

Taking it a step further into the blurred reality of agency/client employer, the CEO told the marketer that if the contract is terminated, they also wanted the client to choose which two of the three staff members, to terminate. Your account pays their salary, so it stands to reason that this decision be yours.

Paying the agency bonus

As part of the agency agreement, a bonus component was added into the contract to be paid to the agency on an annual basis and at the discretion of the CMO. Each year, this modest bonus was paid to the agency without much discussion and was seen largely as a formality.

But this year, the client was facing difficult trading circumstances and budget cuts across the business, with financial incentives for departments that delivered significant savings.

The CMO spoke with the agency managing director, suggesting that as a sign of partnership and good faith, the agency bonus would be paid this year on the savings the agency could demonstrate. The managing director pointed out to that savings were outside of the agency’s control as the budgets were set by the marketing teams and the agency retainer was fixed annually in the contract.

When the time came for the agency bonus discussion, the CMO explained there would be no bonus as there were no visible savings or even an attempt to deliver savings by the agency. The agency MD again explained savings were outside the control of the agency.

About six weeks later, the CMO was invited to attend the agency staff Christmas party and was surprised to see he appeared to be one of only a handful of clients at the party. The reason became apparent when the agency MD stood up and announced to the staff in his speech that while the agency had had a good year and done some fine work, there were a number of unnamed clients who had felt the agency did not deserve their annual bonus and therefore there would be no bonuses this year for staff.

Supplier or staff member?

Beyond the legal or moral issues exhibited in these examples, there is a fundamental issue regarding the relationship between the marketer and the agency. It is all too common to talk about the agency as a partner, when in actual fact the contract defines the relationship as contractors or sub-contractors.

As the agency supplies resources, the relationship can become a personal one, and the time spent working together in co-creation of ideas and campaigns means that close and personal friendships can build across this supplier relationship.

But ultimately, it is a commercial relationship and the agency is responsible for actually providing the resources with the skillsets and expertise to deliver the requirements of the marketer. This can become blurred in some cases, especially when the marketer begins to define how the agency manages their business.

In these cases, the marketer can leave themselves open to being emotionally and morally manipulated, as seen in these examples. Often the ‘relationship’ can overshadow the fact that this is primarily a commercial arrangement, and marketers need to make sure they don’t forget the distinction.

Tags: agency management, marketing strategy

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