Jobless Recovery: No Hiring Spree at Ad Agency Interpublic Despite New Business Wins

Interpublic (IPG) CEO Michael Roth poured some cold water on anyone who thought the end of the recession in advertising means he will be hiring back the 5,500 people he laid off: His agencies will be doing their best to ensure that won't happen.

As clients spend more money, and agencies such as IPG's McCann Erickson win new business, the key for management will be NOT hiring as many people as possible, Roth said. Instead, IPG will be squeezing its existing staff until their pips squeak. It's all about profits, and you increase them by not burning your revenues on new staff whenever new business walks in the door, Roth told Wall Street analysts on his most recent conference call:

Peter Stabler - CrÃ©dit Suisse First Boston, Inc.: I was hoping you guys could compare and contrast the expense pressure on the salary line related to growth coming from existing clients; in other words, scope increases versus new business wins? I guess, to put it another way, if you're seeing growth from existing clients, the scopes increase. Is there an opportunity to increase capacity utilization and not necessarily go out and hire new heads?
CEO Michael Roth: I mean, you put your finger on the whole story in terms of the leverage that we get from our existing headcount. Yes, and that's why I say; a critical component on our growth is through existing clients and scope increases because, yes, obviously, it's incumbent upon us to be more efficient in utilizing existing talent. So as that scope increase occurs, we don't hopefully have to go out and hire a lot of people behind that.

Roth added that "there is a certain amount of hiring that we had to do to support the new revenue,"but said he'd use push existing staffers first rather than bring in new ones: "that's really what the leverage opportunity for us is." About 65 percent of all operating costs at ad agencies are spent on staff salaries and bonuses.

The hiring situation is especially acute at McCann, which has lost a huge chunk of business in the last couple of years, including Verizon (VZ) and Microsoft (MSFT). Wall Street is still asking about McCann's "stability":

Alexia Quadrani - JP Morgan Chase & Co: Can you talk a little bit about McCann? You have contended with some losses there over the last 12 months, with I guess the Tech loss being one of them, a few of which are in your top client relationships. You've also changed leadership there. I guess, can you address a bit the stability of your client base right now at that agency?
CEO Michael Roth: ... We are in the process of introducing Nick Brien to all of our clients, and that is being very well received. I think, clearly, you referenced the loss in Tech and Telecom, but McCann continues to be very competitive. One of the interesting things about McCann is that they have a very strong existing client base. So a number of the improvements that we're seeing in our company are not necessarily from increases in client wins, but increases from existing clients, which is the base of the McCann Worldgroup. Nick is off to a fast start in getting the group together and collaborating in terms of what has to be addressed on a global basis.

It's not restricted to IPG, of course. The recession has taught most ad agency CEOs that the days of having staff with "free capacity" -- i.e. not billing eight hours a day or more to clients -- is over. The recovery, therefore, will begin not with a bang but a whimper.

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Image by Flickr user peasap, CC.

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