Agencies Should Charge Their Clients Overtime

Last week I wrote about the absurdity of the hours ad agency employees work.  This post is an addendum.

Ad agencies charge their clients what is called a “blended rate”  (This is the combined average salary of everyone working on an account.)  It includes the salaries of administrative help, back office people, account managers, planners and strategic people and all levels of creative executives as well as management.  From my conversations with people in the know, this rate actually may cause agencies to lose money, since, ultimately, clients dictate the amount they are willing to pay; if senior people spend more time than estimated or agreed, clients do not pay accordingly.  Agencies accept the blended rate, even at a loss, because they are desperate for new business, especially the network-owned ad agencies. Under this system of compensation, there is always another agency that is willing to accept lower pay.

If a significant number of ad agency executives are working long hours on a constant basis, they should be paid overtime and/or given a bonus and their clients should be charged accordingly.  When I was discussing this concept with a senior executive, he reminded me that most executives are considered “exempt”.  Under the Fair Labor Standards Act (FLSA), exempt employees are not entitled to overtime.  However, in reading the law, a company may pay exempt employees overtime or bonuses, at their discretion. 

If collected, this money should be passed on to employees who work long hours, either in the form of frequent bonuses or as pure overtime pay.

If ad agencies did this several things would happen.  Most important, clients would insist that their agency people work fewer hours so that they pay less to the agency. Paying overtime to agencies would result in happier employees and might reduce turnover significantly. In last week’s post, I told the story of one creative director who resigned over her long hours.  If agencies and their clients paid overtime and limited the amount of time that people had to work, it might attract more talented employees.  Which means that It might generate better work (contrary to some popular belief, when people are tired, they cannot do their best work). 

When I wrote this post last week, I received many comments from people who had left the advertising business for exactly this reason.  Long hours and low pay are not compatible.  I know that paying overtime or consistent bonuses for long work is only a pipe dream, but I wish it would happen.

When agencies were paid by commissions, profit margins were higher so agencies could afford to take care of employees who worked long and hard.  Not so much anymore.  Pity.