And the survey says: keep those belts tight

It's always staggering to see agency financial reports laid bare in the annual Kingston Smith W1 performance survey.

A favourite, though frustratingly opaque, chart is the one listing the highest-paid agency directors. Perhaps it’s not surprising that the UK’s biggest ad agency, Abbott Mead Vickers BBDO, paid out the biggest remuneration package: an eye-watering £1.4 million. Incidentally, AMV’s operating profits were up a tidy 15 per cent, so that’s all right then.

But there are some intriguing stats here. The money paid to the highest-earning director at DDB was up 55 per cent, though operating profits fell 9 per cent; at JWT Group, the hike was 66 per cent, with operating profits up 3 per cent; at Publicis, the package for the highest-paid director rose 53 per cent, while operating profits were down almost 5 per cent.

Of course, some of the figures here include performance-related pay that spans several reporting periods; and operating profits are not necessarily a reflection of the performance of the UK office in isolation from the rest of the agency network. Even so, there’s plenty that’s hard to fathom.

The survey found that, overall, agency employment costs rose to 59 per cent of gross income; the recommended target is 55 per cent. Perhaps the surge reflects the dearth in talent and a desperation to hold on to good people at a cost. But for salary bills to be rising quite so pointedly against a backdrop of financial crisis suggests there’s still work to be done tightening up agencies’ cost base. As we pull clear of recession, there is likely to be even greater pressure to increase staff costs – resist.

Operating profit margins were up slightly across the ad agency sector. Pre-sale Adam & Eve turned in the sort of performance you might expect from a successful agency in pursuit of realising its assets. On that basis, the handsome 30 per cent margins achieved by Albion might be taken as a sign of intent.

At the other end of the scale, according to the tables, Wieden & Kennedy made a -8.7 per cent margin, and McCann Erickson came in at -2.6 per cent. Meanwhile, the difficult year had by The Red Brick Road in 2012 was preceded by a year when margins were less than 1 per cent, employment costs per head were the highest of any agency at £105,000 and operating profits were down 76 per cent. All this before the agency’s biggest client, Tesco, quit.

The good news is that agency income levels, based on predominantly 2011 reporting, are now above their previous peak in 2009. If agencies can keep their costs in check but boost their gross income by just 1 per cent in 2013, Kingston Smith W1 reckons the industry will never have been more profitable.

claire.beale@haymarket.com

This article was first published on campaignlive.co.uk