“Big agencies’ last legacy: the $964-an-hour creative” by Rupal Parekh, Advertising Age

Focus is on media, digital, but traditional chiefs have highest price tag, says 4A’s

Published: October 5, 2009

For all of marketers’ obsession with digital, and smart talk about media taking a more central role in marketing, the agency-world economy still looks a lot like it did 50 years ago: The Don Drapers of the word, aka the top creatives on Madison Avenue, still charge clients far more than other agency roles.

According to a survey from the 4A’s, large agencies with more than 500 employees reported that their chief creatives in 2008 billed clients $964 an hour. That’s more than double what an executive media director at a media agency bills (a midrange high of $392) and what a senior-most person at a digital specialist agency charges (an average of about $400 an hour).

It’s a wide disparity that seems destined to change. “It’s a legacy of Madison Avenue and the days of the creative director at a traditional agency being the most valuable player that gets the biggest salary,” said Tom Bedecarre, CEO of AKQA. “That’s shifting because the role of traditional agencies is changing–media isn’t there, and often times interactive skills aren’t there.”

The survey–the first on labor-based rates the 4A’s is sharing widely–represents a rare look into how much marketers are willing to pay their agencies, even in the throes of a recession, and it shows that the Big Apple remains dominant. A chief creative based in the New York Metro area billed an average of $751 an hour last year–more than double the average of what a chief creative in other parts of the Eastern U.S. or in the South bill, at $319 an hour. In the central part of the country, a head creative billed an average of $420 an hour, and in the West, an average of $461.

Even so, the $964 average for creatives generally beats what the lead attorney on Chrysler’s bankruptcy, Corinne Ball of the New York law firm Jones Day, reportedly raked in this summer: In the frenzied first month of the bankruptcy, during which she worked an average of 15-hour workdays, including weekends, Ms. Ball billed the automaker $900 an hour, according to Reuters.

Still, for some huge shops, that’s chump change: The survey cited the mid-range high for a top creative at a big shop at a whopping $1,420 an hour (“mid-range” means after the top 20% had been shaved off the numbers).

More than 230 agencies, including Crispin Porter & Bogusky, BBDO, JWT, MediaVest, Y&R and Carat were represented in the survey. They reported hourly rates billed to clients in 2008 for some 130 positions across 14 service departments, such as creative, media services, account planning, research and print production.

Of course, hourly billing rates are just one metric. Arthur Anderson, of Morgan Anderson Consulting in New York, points out that “inherently, hourly rates are not transparent, they are opaque. Just comparing the amount of the hourly rates doesn’t tell you what it’s made up of . There’s a profit margin built in there, salaries and overhead, so it’s just the tip of the iceberg.”

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Still it’s a helpful tool, and especially when you consider that–despite mega marketers such as Coca-Cola experimenting with value-based pay arrangements for their agencies–labor-based billing is still the predominant method of agency compensation today.

Experts say the numbers track with agency labor-compensation trends for several years. “Typically, the creative folks make the most money on per-hour basis–though sometimes a really good strategic planner will be right up there too–followed by account services, then media services tend to be the lowest paid,” said David Beals, president-CEO of Jones Lundin Beals.

To be sure, some of the gulf in pay between senior creatives and other roles is partly due to the legacy of the ad business. Despite the growing importance of media agencies, they are still playing catch-up with creative shops. “There’s no question media agencies are becoming more important and more valuable to clients as the media landscape becomes more complex,” said Lee Doyle, North American CEO of Mediadege:cia. “However, creative and ad agencies started out at the top of the food chain and we are still working our way up that food chain.” Mr. Doyle added that agencies share part of the blame for making the work look too easy and not conveying the complexity of what they do for clients.

Some industry observers think agency economics are ripe for upheaval–though the changes won’t come fast. “Prices won’t reset overnight, but I think over the next 10 years you’ll see a change in who makes what, and who is perceived as having the big ideas,” said Russel Wohlwerth, principal at consultancy Ark Advisors.

He added, “The industry is in a state of flux and the value  proposition of different marketing firms is going to change–what the creative agencies are worth now and what they’re worth ten years from now may be very different … there’s a high likelihood that the relative value of each kind of marketing firm will be rejiggered.”

Contributing: Michael Bush

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