This industry can, and should, be more creative than jumping straight to pay cuts
Instead of pay cuts, businesses should first introduce loans that see employees repaid down the track with competitive interest rates, argues Henry Innis.
There’s a lot of debate in the industry at the moment about one thing: pay cuts.
Pay cuts are a response to a problem: we’re an industry that is notoriously creative in how we manage cashflow and perhaps not as rigorous in maintaining working capital as we should be. Tough times call for tough measures.
Usually, in recession, there are redundancies. It seems the prevailing mood today recognises (rightly) that we should try to prioritise employment over anything.
That is a good thing.
It’s fair to make those cuts if you have to. And inevitably, there will need to be stand downs and other measures unique to companies, particularly small ones. Executives first and foremost should bear the brunt of this pain, where possible.
We must be realistic about this. But as leaders, we need to lead — and as creative leaders, find ways to lead more creatively.
Here are some interesting ‘facts’ about this period:
- Most employee discretionary spend will decrease;
- Which makes pay-cuts more doable for certain categories of staff (not the junior members, who are probably underpaid in most circumstances); and
- Cashflow-wise, businesses will need to weather the storm, but recovery will bring boons as well.
Perhaps it is time to recognise that, if we ask for pay cuts, we should structure them to reward employees sacrificing their pay for our short-term. After all, we’re a creative industry. We’ve worked out all sorts of crazy rebate schemes (which I don’t love, but whatever). Why can’t we do so for our staff?
Here’s the idea in its simplicity, which I’ve pilfered from a startup named CityFalcon:
- Pay-cuts are structured as a loan to the business with a competitive interest rate
- Should the employee be made redundant, the loan begins to be repaid over a 24-month period with interest, keeping a level of cashflow in the business whilst paying the employee
- Once the business reaches a level of working capital, employees are repaid with their interest
- Because agencies typically generate cashflow quickly in good times, this is a fairly simple model and likely cheaper and quicker than the banks
- And employees share in the success of rebuilding the company for recovery – the faster employees help the employer get back, the faster they get their money plus interest back
I know these are tough times for everyone. There are probably a tonne of things wrong and reasons why this idea can’t be done.
But please, let’s do what we preach in our industry — get creative and collaborative with each other — rather than shutting down every suggestion before it even has the breathing space to be possible.
Together, we can do this.
Henry Innis is a partner and founder of Mutiny
Love it. Solves the ambiguous promise of a pay rise at a later date.
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Look I do work for the bloke, but even then I think this is an interesting idea worth investigating*
*posted not under threat of a 40% pay cut
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Let’s also remember that anyone on individual agreements has the right to negotiate
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I think he makes sense
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Loving. This too. It’s creative solutions to tough problems like this that agencies should be looking at.
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Seriously your commentators are on drugs Mumbrella.
Mass redundancies at agencies any day.
40% pay cut is a dream.
This makes 2008 look like a walk in the park.
It’s a shame but look outside at what’s actually happening.
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Henry, what you are talking about is a loan.
Would an agency be wise in taking a loan from a bank to keep employees employed when there is no revenue? Hells no! Would a bank lend it for that reason? Same answer. That is not repayable. The balance sheet impact of those loans would cripple the business for years to come.
My agency is not borrowing 40% of my salary to invest in a new office or technology that will increase the revenue over time. What we are doing now is sharing our money to subsidise our colleagues jobs.
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For a lot of businesses in this industry, their biggest cost is people so if there is a way to soften the blow for individuals/ the collective group I’m all for it.
I think people are forgetting the market had been tough the past 12 months and most businesses had already removed as much unnecessary cost without touching the people number already, so it’s a last resort in most instances.
I couldn’t tell you one leader/ manager who thinks this is an easy option or doesn’t understand the impact this has on their team, their livelihoods and mental health.
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No offence Henry, but as well-intentioned as your suggestions are, I believe any business would be crazy to take them up.
Why? Because…..
A] the number of jobs will never be the same again. So, min 20+% of the employees you’ve taken a loan from won’t ever get a job in the industry again.
B] the last thing any small, business can afford to do right now is take on more debt. You do what you can do to help those you can help – but otherwise you have to cut your losses now, not create long term debt you’ll be struggling to ever pay. [If it was such a good idea Qantas and Premier would’ve done it already]
C] the boon you talk about won’t happen for the majority of agencies because much of what we do won’t be needed anymore – either a] because of automation or b] because consumer habits will have changed markedly. Conspicuous consumption is out, staying home and saving will be in. So, before you start agreeing to loans, you’d better make sure you’ll have the money to pay back those loans.
D] If you know of any companies juniors underpaying juniors report them – because its illegal
E] And to Zac’s comment – what pay rise? There won’t be any. The pendulum needs to swing back to ‘fairness’ and most people who take the risk of creating employment think some, not all, of today’s labour laws discourage employment. The sooner people realise that from now on just having a job makes you one of the lucky ones the better. Forget automatic pay rises – those days are gone. And if you don’t have a job, 50% chance your next one will be part-time, or you’ll only be employed as contractor. In other words – start to think like a small business operator. Start a company – get your structures and accounts into shape, because you’re about to learn about the importance of revenue management sooner than you think.
F] Nice thoughts Henry – I wish you well – you’ve taken a chance and created jobs for people which is more than most – so I respect your opinion. I just disagree with it.
Good luck.
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I think we needy recognise that this situation really isn’t like our recessions of old, which we sort of missed anyway. To bounce back we will need to do something very different and probably almost regulate change.
For example, and I know this sounds crazy, but what about the concept of means testing whether you get a job back in the industry, combined with age.
So if you are fairly well off and over 45 or 50 you are de-prioritised over younger people who are coming through and need the work and money and are part of rebuilding the future of the industry.
This is not a solution but a concept.
I read that in Spain and Italy doctors are making decisions about who will live or die based on the availability of medical services or ventilators. These are big decisions. Compared to this, early retirement for someone who is wealthy and already worked a lifetime in the industry is pretty insignificant.
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Interesting idea, but I work for very very small agency. I have been advised I won’t be paid my full salary next week, or probably for the months to come.
Am I supposed to keep working full time, hoping (praying) this will be made good in the end (assuming the business is still there)?
And what if it’s not? We have no HR per se and no one for me to ask about this specific issue, other than the person telling me I won’t get paid in full.
If anyone has any advise of what I can do, who I can speak to, that would be very much welcomed.
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Hey Anon. I’d be happy to talk to you if you reach out.
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Or your agency is profit sharing after asking you to take some of the downside in a recession. Just a thought.
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That would be great Henry. How/where can I find you?
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Anyone trying to come up with creative solutions to challenging problems is to be encouraged, especially ones as challenging as these. Keep em coming Henry. CJ
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Wow!
This is so ageist.
Replace people over 45 or 50 with people of different ethnic backgrounds, people of different sexualities or different genders and see how it reads.
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Hi anon, use henry at mutiny dot group. 🙂
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If you want to be ageist, why not be untalentedist? How about this. Going forward, creatives respond to 5-10 award school type briefs. All anonymous. They are judged by 10-15 ECDs, CCOs at the top of their game. No names. No gender, age or ethnicity. Then only the top ranking creatives get work. All with complete anonymity. Just the best work done by the best people. Not mates, not boys club, not gender or ethnic equality, not age. Just the best people doing the job. Any qualms?
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Firstly, make redundancies.
Then make more redundancies.
Then stand down staff
Then seek pay cuts.
Then seek govt assistance.
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Agencies reap 100% of the profits for overtime, overworked and sometimes underpaid staff when business is booming and all the execs have to go pitch and not support their staff, why can’t they share the pain and after benefit when things get back to normal?
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