EXCLUSIVE – Do profit sharing schemes really work in the advertising industry?

0

Credit: Hi, I’m Nik at unsplash

Bonuses, with short and long-term goals to decide the level of payout, have long been used in the advertising industry as a way to keep staff and ensure they stay focused on goals. clear trades.

Independent media agency This is Flow recently announced that it would share up to half of its profits with its staff.

Jimmy Hyett, Founder and CEO: “I hope this model makes a splash in the industry, especially in this climate where it seems almost ridiculous to give away profits.”

But is this level – 50% of profits – unusual and does it help motivate staff to work on growing the business?

Recruiter Simon Hadfield, Managing Partner at DMCG Global: “A fantastic initiative and I agree it could be a game changer for talent retention.

“I hope that’s not too optimistic because margins across the business are low…so are the numbers working?”

The 50% is probably on the higher end of profit shares, depending on how it’s calculated. Hadfield says a standard would be 10% of annual profit with staff.

The independent media agency Next&Co has implemented an incentive plan, paid quarterly, for more than three years.

“We offer this to the managers of each team just to feel empowered and rewarded for their team’s success,” says co-founder John Vlasakakis.

It works by calculating all the income that was paid in a month, then subtracting salaries and operating expenses. And then 5% of the profits are paid out at the end of each quarter.

Each staff member can receive another bonus of 5% if they reach their annual individual objectives.

Independent Pearman Media has a profit share, based on a certain level of pre-tax profit.

Afterwards, all staff members receive a 5% supplement on their salary and a 10% bonus if another level is reached.

Chief executive Dominic Pearman says the profit share is about 50% of overall profit.

“We also give everyone their birthday as paid leave and once an employee has completed five years of continuous service, they are entitled to five bonus days off per year, which is five weeks annual leave,” says- he.

Publicly traded companies have the additional leverage of stock award/option/stock purchase plans. The bonuses are linked to incentive plans generally expressed as a percentage of base salary, depending on certain obstacles encountered or overcome.

And because these companies are required to report the level of payments, we know, for example, that Seven West’s James Warburton is a $7 million man.

Freelancers are stuck with bonuses based on a percentage of base salary or a share of profits.

As the advertising market skyrockets after the pandemic year 2020, global advertising groups have supplemented the money from incentive programs.

Businesses are seeing big increases in revenue, but that also means rising costs, including bonuses. This is amplified by the general shortage of experienced staff, which supports salaries.

WPP, whose revenue has already returned to pre-pandemic levels, has “significantly increased” incentive pools for the second half of the year.

In the six months to June, staff incentives jumped 411% to £244million. In the same half of 2020 – the worst period of the pandemic – staff incentives were just £48million.

Jay Pattisallsenior analyst at consulting firm Forestindicates that employee profit-sharing programs in the agency world are still rare and that most programs are designed by independent agencies.

Plans, whether profit sharing is in the form of a percentage of annual salary that vests over time or a cash bonus, are designed to incentivize and retain employees.

This takes on renewed importance in today’s talent shortage. “The Great Resignation” – as people reassess their world and lifestyles after the pandemic year 2020 – makes retention strategies such as profit sharing more relevant.

“However, I would say a profit sharing plan or bonus only goes so far,” Pattisall said. AdNews.

“For young agency workers, work is about more than money, including work, the energy of a creative environment and the valuable experience gained that builds careers. For less tenured workers, restricted or vested sums of money may seem intangible or “not real” because the product is not accessible without tax implications.

“And if employees leave the company before the vesting period, the amount the employee takes with them is significantly less than what was originally awarded.

“Where profit sharing appears to be most effective is in retaining tenured employees who have worked longer periods in the business and are invested in profit sharing.

“This situation is a strong financial incentive for employees to feel valued and committed to the employer.”

Do employee incentive programs drive performance?

“In today’s talent shortage environment, any program that can help recruit and retain top talent is a plus,” says Pattisall.

Do you have anything to say about this? Share your opinions in the comments section below. Or if you have any news or tips, email us at adnews@yaffa.com.au

Sign up for the AdNews newsletter, like us on Facebook or follow us on Twitter to break stories and campaigns throughout the day.

Share.

Comments are closed.