How agencies are approaching the government wage subsidy

Now that eligibility details have been set in stone, leaders are conducting a 'balancing act' as they look for ways to protect their most valuable asset: staff.
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Like in any service-based industry, staff is an ad agency’s biggest asset – but also its most expensive one.

In an industry in which staff is the lifeblood of any operation, agency leaders and executives strategy has spoken to have expressed that th­­­­­­ey want to hold on to their staff, and that the $73 billion Canada Emergency Wage Subsidy – which passed in Parliament, at an emergency sitting, on Saturday night – is the most viable and compelling tool they can use to achieve that.

However, if agencies have difficulties making payroll – due to an overall slowdown in business while the majority of the Canadian economy has been put on pause – and hold on to too many staff, they risk going under, as one agency head described. If an agency holds on to too little staff, then they risk their ability to serve their clients’ business.

“It’s about finding the perfect balance,” an agency CEO, who didn’t want to be identified, says.

The Canada Emergency Wage Subsidy (CEWS) covers 75% of an employee’s wages (up to $847 per week) for employers of all sizes and across all sectors, retroactive to March 15. Companies are eligible if they have experienced a drop in gross revenues of at least 15% in March, and 30% in each of April and May. The program is temporary, however, for the course of a 12-week period. Companies have the option of determining the revenue decline by comparing it year-over-year to the same month from 2019, or to its average revenue between January and February of this year. Companies can also apply for CEWS even if they applied for the 10% temporary wage subsidy previously offered by the government, though that subsidy is likely to reduce the amount available to a company through CEWS.

Any taxable private corporation, non‑profit or registered charity is eligible to apply, which includes the Canadian subsidiaries of international companies, sole proprietorships and single-employee companies; however, the wages of Canadian employees living in the U.S. while working for a Canadian company are not eligible.

Jack Bensimon, founder and president of Bensimon Byrne, says his agency and its Narrative and OneMethod sister shops will be utilizing the wage subsidy to “maintain full strength.” Bensimon notes that his agency hasn’t enacted broad layoffs, and that he hopes not to do so. On top of the personal toll that can take on an employer, it might be what’s best for business: the function of agencies, and the expertise of people who work within those agencies, have broadened and diversified over the years.

“A decade ago, if a client stopped spending, if you had a major revenue hit, it was a relatively narrow group of jobs and responsibilities that you would reduce,” he says. “Today, we do such a wide array of things for our clients – everything from information architecture and experience design, public relations, media, social media, you name it. The breadth of experience that a diversified agency provides makes it more difficult to reduce headcount, because you run the risk of reducing your expertise. It’s not simply taking out the people who would work on that business – you take out entire functions.”

Like Bensimon, Aldo Cundari, chairman and CEO of Cundari Group, is prioritizing his staff, and sees government funding as a major way to address that.

But the issue with the CEWS, Cundari notes, is that the 75% wage subsidy applies to the first $58,700 normally earned by employees – and when considering all ranks and seniority levels within an agency, he estimates the average salary as being between $80,000 and $90,000. “So my subsidy isn’t 75%. My subsidy is closer to 45% to 50%,” he says. That means Cundari, and other employers, would have to cover the remainder, which “is a huge [amount] of money to carry for three months without income,” he says.

“When you look at the programs, which is cheaper? Is it better for you to reserve your cash and lay off a majority of your staff? Or not managing your cash and running with a subsidized program, where you’re still going to be paying about 50% of your salaries? And the problem is you don’t have income that reconciles against that.”

Cundari says he thinks a hybrid of the two scenarios he lays out is a good option. “I advise this for any agency: do a reality check as to what your actual revenue will be, given the fact that production, which is a large component of revenue, won’t be happening. Or, if it happens, it’ll happen towards the end of this, as things start to recover,” he says.

“The second part of it is: find out your cash flow, because a lot of companies are working from home. It’s hard to get paid when they’re not at the office to write a cheque. That’s not just agencies – that is everybody in the supply chain. So if the client doesn’t pay the agency, the agency can’t pay the supply chain. It feathers all the way down.”

Bob Macdonald, CEO of Bond Brand Loyalty, notes that the other thing that’s important right now is keeping strong relationships not just with employees, but with business partners as well. “If Canada is going to come out of this in a healthy fashion, it needs to have relationships intact – between brands and their customers, between brands and their suppliers, between suppliers and partners, and the employees across the board,” he says. “The worst thing we can do is to start to sever all those relationships in the more traditional fashion of an economic downturn, because that makes it much more difficult to come out of this in an effective fashion.”

Alan MacDonald, COO of Diamond Marketing, says the manner in which other wage subsidies that existed for small businesses applied were “very tightly classified,” he describes. “When they revised it for COVID-19, they appeared to remove all of the shackles and made it sort of open to everybody, no matter the size of the business,” he says. “Overall, I feel like it is being done compassionately and it’s in line with how we’re trying to run our business under these trying times.”

Outside of funding and subsidies, Alan MacDonald says the federal government’s work-sharing program is something some agencies might consider a viable option. The work-sharing program features a “work-share unit,” consisting of a group of employees with similar duties who agree to reduce their hours by the same percentage and share the available work over a specific period of time to avoid layoffs. As per the Government of Canada, the work-share unit must reduce its hours of work by at least 10% to 60%. A work share agreement must be at least six consecutive weeks long and can last up to 26 weeks, but employers may be allowed to extend their agreements for up to a total of 76 weeks in some situations.

Another significant financial issue that numerous agency executives noted was rent relief. A lot of agencies are situated in high-rent districts in downtown Toronto and occupy thousands of square feet of office space, and there is no rent deferral option or guideline in the federal government’s COVID-19 Economic Response Plan. However, real estate investment trusts such as RioCan, Choice Properties and CT all said last Monday that they were working with tenants who require support due to the financial adversity brought on by COVID-19.