The long and winding road to recovery: rolling back emergency financial measures

After the sudden lockdown, agencies must now begin to extricate themselves from the emergency financial and physical measures that went with it, but getting out will be far more complex than going in.

Having been nimble enough to enter the government’s mandatory coronavirus lockdown within days, many agencies are now slowly beginning to roll back their emergency measures – both financial and physical – but predictions abound that it will be far from business as usual for a very long time.

Last week WPP, which employs approximately 100,000 people, ended pay reductions for about 3,000 senior executives after three months. However, across adland, numerous agencies are still relying on the government’s furlough scheme, with many still expected to make redundancies between now and the end of the scheme in October, according to findings in the Coronavirus Media Business Outlook Survey Mark 2, carried out by Moore Kingston Smith.

And for the majority of agencies, how ever they are weathering the storm, the pandemic has proffered up an opportunity to focus on the running of the business; its structure and future shape, as well as its culture, meaning the industry could be in for a period of significant upheaval.

"Leaders have been able to ask the question: 'what is the future of our agency?'," Francesca Robe, director at Moore Kingston Smith, says. "It’s about making sure that positive learnings from this whole period are not lost.

"So, as well as trying to get people back and managing that process, I think lots of agencies are trying to take the opportunity to understand what the positives have been and building that into their future, because, ultimately, agencies are their people."

This is certainly true at M&C Saatchi, where staff support and communication has been a focus during the pandemic, in part through an app called Vault, which enables employee feedback.

Camilla Kemp, chief executive of M&C Saatchi, says: "The pandemic, and everything it has brought with it, has given us a chance to make changes in how we work with our clients and to our operating model, as well as how we support our people. These have, in many ways, been hugely beneficial.

"The changes we’re making will open up new opportunities for attracting and retaining talent and clients, too (we hope!). For example, we’re continuing with the newly adopted habit of twice weekly, all-agency meetings, in which we have shared the highs and lows of the last few months openly and transparently. This has been key to keeping everyone feeling connected."

Adapting to change can be uncomfortable for many, so what’s most important, according to Colin Fleming, chief operating officer at financial planning and employee benefit consultancy Connor Broadley, is candid communication.

"The agencies that did best through the financial crisis were the ones that regularly communicated to their staff, but never gave firm commitments that they might risk reneging on subsequently. They communicated frequently but with honesty rather than with hope," he says.

So how can agencies plan for the future and plot paths to recovery as they start to extricate themselves from Covid-19-induced changes?

The return from furlough

From the start of August, there will be a cost to employers for furloughed employees. Agencies will need to start paying towards furloughed employees' national insurance, plus pension contributions. From September the cost will increase, and as of October, when the scheme ends, it will increase once again, Amy Cretten, strategic HR partner at Moore Kingston Smith, explains.

"A lot of the agencies weren’t hit hard at the very beginning of the pandemic because they already had projects in the pipeline, or projects that they needed to close," she says. "It's actually going into the last couple of months of the year that they're going to struggle, because they haven't had anyone to win more work."

Many of these agencies, Cretten explains, are now bringing people back on "flexi-furlough", perhaps one or two weeks per month, purely on the basis of winning new business, so that when October arrives and there's no option but to bring people back from furlough, a new business pipeline has been built up again.

This is an aspect of the scheme being used by creative agency Mr President, as chief executive Claire Hynes says: "Right now, all is good. We’re very well adapted to working from home. Most of our team are back from furlough in some form and the flexibility in the scheme makes life much easier. For now. But 2020 doesn’t stand still, and we’re all having to adapt to what comes next."

Lift pay cuts or offer share options?

Like WPP, performance marketing agency Merkle has also moved to end pay cuts. The Dentsu-Aegis-owned business, which employs 900 people in the UK, had furloughed only 2%-3% of its workforce, preferring instead to create a buffer through pay cuts. Having asked its UK employee base if they would be prepared to take a voluntary pay cut, with the level differing according to seniority, the answer was a resounding yes from 99.3% of staff.

Thomas Byrne, EMEA executive vice-president for agency services at Merkle, says: "We asked people to commit to a three-month pay reduction and we won't be extending that. We were very grateful for the overwhelming support. We still have a temporary hold on pay rises and there is a series of cost control measures that we're looking to unwind."

While moves to curtail pay cuts after three months could be viewed as a reassuring sign of the end of the crisis, many rival groups plan to keep reductions for senior management teams for six months or longer, and for some there are no set end dates.

At Hey Human, chief executive Neil Davidson says roughly 25% of employees were furloughed, while the senior management team have all taken pay cuts. "We're grown-ups and we’ve taken it on the chin. And it will go on until it feels appropriate to stop. That might be the end of the year. We've been fluid with a few things, and that will be one of them. We're not in a hurry to take a full salary again."

For those agencies that are maintaining pay cuts, there are options for keeping senior management teams engaged, such as share options and bonus schemes.

"Blanket pay cuts of 20% to 30% depending on seniority have been commonplace at a lot of agencies, and where these can’t be lifted immediately, agencies are looking at alternatives. There is a nominal cost to setting up a share option scheme, but it’s essentially a way of recognising and motivating the senior team, without having to give them hard cash," Cretten says, pointing out that now is a favourable time to agree share option schemes.

"You have to liaise with HMRC in order to get the tax benefit from those schemes and, because a lot of agencies have gone through a pretty tough few months, they're more likely to be able to negotiate a more advantageous value to those options."

An alternative to share options, Cretten says, is to add a caveat to pay cuts, in the form of a review towards the end of the year, where agencies may promise to top up what’s been cut, if they end the year in a position where they are able to do so.

"There's definitely a motivational engagement piece, where agencies are very aware they're asking a lot of their staff, but they want to keep their business going, therefore, yes, they've had to make these cuts, but they want to be fair on the other side and manage those rewards," Cretten adds.

Robe points out that some agencies are managing the trade-off by increasing the bonus potential around new business. "While their pay cuts may remain in place, when they win new business, the bonus potential is huge. Obviously this motivates them to bring in new business, but also means that the cash that the agency is parting with is cash that they've won. We are definitely going to be seeing bonus-focused remuneration rather than salary focused," she says.

Dealing with redundancies

Pay cuts may be enough to save jobs, but in many cases it may not have the immediate financial impact that agencies require, and they may still have to lose those roles to restructure, Cretten argues. However, she points out that when considering redundancies, it is vital to remember it’s not a short-term fix.

"If you make someone redundant, there's a cost for that, and then only few months down the line do you actually start to see the benefit of it. I advise agencies to think about whether, a few months later, they may have a role for this person, then perhaps it is better to keep the senior management salaries lower until this point and then potentially review it at that stage."

With the general culture at agencies being very friendly and relaxed, usually with better-than-average benefits and team ethics, redundancies are likely to hit harder and feel more uncomfortable than in other industries, Cretten points out. However, in the early stages she advises removing the emotion as much as possible, instead focusing on the structure of the agency.   

"It's really difficult to do, because it’s very emotive, but they need to just keep their business heads on and identify the roles that are perhaps not needed. And then at the next stage, once they’re actually in consultation, they really need to have empathy for the individuals and they need to show compassion during that whole process, while also maintaining that business awareness," she says.

Although making redundancies is never easy, it's important for business owners and the management team to look at the future of the agency, although unfortunately that might mean that there are some roles that are no longer needed.

Cretten adds: "If there are roles where there's just not the work, because of the way that the agency has developed, then it's really important that management does take action for the sake of the remaining individuals working in the agency, and the future of the business. And for those on the receiving end, it’s important to remember it's the role that's redundant; not the person."

With this in mind, can it be fair to end pay cuts while simultaneously making people redundant? Fleming believes that this is perfectly acceptable, since even in normal trading circumstances, people may be losing their jobs due to a restructure or their roles being made redundant the same week or month that others might be promoted or receive pay rises. "Business changes very quickly, especially in this sector. Agencies must manage their business cost-base in line with their client activities and put resources where they are most needed," he says.

Looking ahead, Fleming points out that while September 2020 will be focused on getting back into partial working, children going back to school and people returning from holidays, October, which he describes as a "double whammy" is usually the month when businesses take their financial reviews. Not only are they getting their final quarter budgets and seeing what the current financial year looks like, they’re also giving shareholders a first look at budgets for the subsequent year.

Because October is also when many agencies talk to clients about budgets, long-term relationships and retainers, they usually have revenue intelligence at this point. Typically, most agencies will then do a recount of their numbers in January, since they will have closed the previous year. Fleming predicts that although there will be a minority of redundancies in October, the majority will go in January.

A return to the IRL workplace?

PM Boris Johnson announced last Friday (17 July) that employers can bring staff back to work from 1 August if they believe it is Covid-19 safe. Under the new guidelines, the PM also said people should use public transport again, making it possible for many to travel to work. 

While it seems that agencies are starting to open their doors, the return for most is extremely cautious, with the majority being guided by employees. Merkle, for example, has a 430-person premises in London which has reopened to a maximum of 60-person occupancy. Its employees have been categorised and prioritised according to their need and desire to return physically to the office, and the company says any return needs to be based on each individual’s comfort.

"We need to be mindful that we have employees at all ends of the spectrum. One colleague’s father has been in intensive care for 80 days, so they are understandably not considering a return for many reasons, but at the other end of the scale we have lots of people who are at the beginning of their careers who may prefer to return," Byrne says.

Likewise, M&C Saatchi has reopened its doors this month "with caution and consideration" described as a "huge undertaking" by its operations, security, IT, and building services teams. Safety is the top priority, Kemp says.

"Having proven how efficiently and effectively we can work remotely, we’re giving our staff the option to come in, but only if they’re 100% comfortable with doing so. We understand that longer commutes, childcare needs, healthcare concerns and many other factors means lots of us will choose to work remotely for the foreseeable future," she explains.

"Whatever the choice, it’s personal and we fully support those decisions," Kemp adds. "While not everyone will be physically walking through the doors of Golden Square again immediately, we’re feeling energised by having more freedom and choice about when and how we work, and we’re proving that we can deliver great work whilst we’re at it."

There is a similar sentiment at Mr President, where Hynes explains the team will be based at home but coming together for working sessions and meetings for those that feel comfortable. They are "hoping to ramp up to the full and buzzy office we all know and love once it’s safe to do so".

However, she believes people have been drained by the events of the past few months. "I do think people are tired. It's been a relentless few months. We're making sure everyone takes some time off and has a holiday over the summer. Knowing when to stop, at the moment, is as important as knowing how to keep going," Hynes says.

Four months into being separated from colleagues and WFH, Rania Robinson, chief executive and partner at Quiet Storm, acknowledges that there's a risk of erosion to the culture of the agency. "I’m feeling like the way we’re working is very task-led. I miss those little moments of chats, lunch, having a break on the sofa and perhaps missed opportunities in terms of collaboration. But we are encouraging people to meet in bubbles, if they want to, as and when it’s safe to do so."

Lightening the load of office costs

With many agencies not rushing people into work spaces again, there are numerous reports of changes to property needs, with some reporting that they have jettisoned their offices after having been able to terminate their lease. "The only thing we've sacrificed, which was more of a burden if anything, is our workspace and we now feel freer for it," one anonymous commentator said. This agency is now saving money having shed its offices and is looking into new ways to provide desk space to those who need it, but say they’re unlikely to invest in the large overhead model again. 

Hey Human, which currently operates from a combination of private office space and a large shared office space, says the commute into work is the most off-putting issue for its employees, who expressed their thoughts on a recent employee survey.

"The idea of getting on a crowded train first thing in the morning with people right up against you – people are really cautious, but it’s the habit thing as well. Once you stop, and it's been about 120 days for us, so once you get out of that habit, it suddenly feels like a big thing to get back on the train. We’re going to be led by people's sentiment and not 'we want everybody back into the agency'. And we've got no time limit on that," Davidson says.

Addressing individual concerns

Of course, this is an uncertain time and some employees will be very anxious about coming back to the office. They might have genuine feelings of anxiety about very specific aspects: if they're booking a desk, will they be sitting at a desk that someone else has sat at yesterday, and will it have been cleaned properly? Or it might be that they don't want to use public transport. Or it might be that they are keen to get back to the office because they really miss that interaction. Every employee is going to have very specific concerns so it’s advisable, according to Cretten, to get employee feedback, individually, via staff surveys or a focus group.

In situations where employees might not feel able to be candid about their feelings, Cretten suggests that senior managers set up a team call to explain what they want to gauge from that meeting, and then leave them as a group to have that discussion. The team can then nominate a spokesperson to deliver feedback to the manager at the end of the meeting. "Being able to collectively give that feedback makes it almost anonymous, so they'll feel much more confident in actually delivering that feedback because they're not only one person."

Ultimately, it’s clear that coming out of emergency Covid-19 measures will be far more complicated than going in. But, if some of the changes experienced over the past few months can lead to positive outcomes, such as a happier, less-stressed workforce, which benefits from time saved from an unnecessary commute, then at least some small silver lining will have come out of the crisis.

Picture: Getty Images

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