Buckle up: Even more wage inflation is coming for agencies

Whether a pint of beer, a tank of gas or a list of groceries, consumers are feeling what the drumbeat of news headlines is telling them: the cost of living is skyrocketing, and there seems to be no end in sight. 

The Department of Labor reported last week that in May consumer prices jumped 8.6% versus the 12 months earlier. That is the highest rate of inflation since December 1981. It is also up from April’s year-over-year surge of 8.3%. 

Americans are worried. According to a recent Pew Research Center survey, seven in 10 see inflation as a very big problem for the country, ahead of affordability of healthcare (55%) and violent crime (54%).

What does this mean for the agency world? Get ready for even more wage inflation. According to the 2022 PRWeek/PR Talent Salary Survey, the median salary increase for agency pros in the U.S. was a robust 15.6% versus the 2021 survey, when the year-over-year hike was 6.8%.

The 2022 survey was in-market amid a talent war, in large part fueled by comms’ heightened role in helping companies navigate the pandemic. Now agencies are having to contend with economic headwinds. 

“The pressure on wages is going to get worse,” predicts Grace Leong, CEO of Hunter. “During the pandemic, we had wage inflation because of a short supply of good comms people, but now the pressure to increase wages is coming from economic inflation. People are going to feel the pinch and turn to their employer and say, ‘Pay me more because I am paying more at the grocery store and the gas pump.’” 

Employees expect more from their workplace, adds Leong, viewing it as a place that takes care of them, not just financially, but in terms of medical benefits, physical safety and their mental well-being. This includes creating a culture of belonging and inclusivity. 

“The employer was all that was left standing after the pandemic,” she explains. “Church and community collapsed along with other traditional support structures, and so wages will continue to plague agencies, just as we had thought we might get a little reprieve.” 

The impact on the agency business model will be significant, adds Leong.

“It’s going to be tough to operate at the margins that we have historically used as guideposts for our business, given the amount of pressure on an organization to be many things to every single employee,” she says. 

Leong notes for instance tailored working arrangements, in addition to other employee customizations, but she says the industry needs to be up to the challenge. 

“We have got to adopt new margins. It is exciting but will also be a lot of work,” she says.

In comparison to other earners, comms professionals in the mid to senior range are well-compensated, generally not living paycheck to paycheck, but that doesn’t mean they aren’t feeling unease. That is especially true in a market like once-hot Silicon Valley, which has been rocked by layoff and hiring freeze announcements.

Factoring rising interest rates with the inflation, “it’s created this anxiousness and nervousness,” says Jason Mandell, cofounder and principal at LaunchSquad. “I think it’s because a lot of people haven’t really experienced inflation before. I’m 49 and I don’t ever remember my life ever being impacted by it, and so it feels really jarring for people.” 

LaunchSquad has bumped salaries by about 10% in the past year. It has also tried to soothe anxieties during an all-hands meeting, and last week informal team sessions essentially served as a Q&A about inflation and other economic headwinds.

“People were asking a lot about interest rates and the economy and inflation,” Mandell says.

Regardless if there is a recession this year or not, one of the things he reminded his staffers of is the sector’s resilience. 

“PR has pretty good staying power in market instability,” he says. “In recessionary markets, it is better to be in PR than in paid media.”

And there are signs of client retraction. Amid Netflix (one of LaunchSquad’s clients) cutting 150 staffers, the firm has been “seeing more client attrition than we typically would,” says Mandell. “But we work in a niche with a lot of early stage start-ups and so we’re probably a little more exposed to the economy than a more traditional agency with a bigger client base” 

Nevertheless, LaunchSquad has increased client fees by 10% and in some cases by 20%, but he explains the increase to clients isn’t a year-over-year equation. 

“We hadn’t meaningfully increased fees for several years, and actually our average fee at the nadir of the pandemic in 2020 went down,” says Mandell. Providing hypothetical numbers, Mandell says if the average client fee was $18,000 in 2019, then it dropped to $16,000 in 2020 for the same amount of work, and is now $21,000. 

“Inflation data can be misleading, depending on the numbers that you compare. Going from $18,000 to $21,000 in three years is not that much inflation [about 5.3% per year],” he notes, “However, going from $16,000 to $21,000 in two years is a lot [about 14.6% per year].” 

In some cases, client fee increases were due to a recent review of its retainers. LaunchSquad found in some cases the amount of work it was doing for a client wasn’t aligned with the retainer fee. “We gave the client the option to pay more moving forward or find a way to reduce the workload,” says Mandell. “Now, we are doing holistic client reviews every quarter to make sure we keep aligned on our retainers.” 

Allison+Partners took inflation into account in its recent pay increases. It reviews staffers twice per year, often spring and fall, depending on when they were hired. 

“We are trying to get ahead of the cost-of-living increases,” says Jonathan Heit, cofounder and global COO of the firm. “We give raises to keep competitive in the marketplace, but we also had to think about cost of living increases for our people.” 

Of household goods and services, gasoline had the biggest surge in cost, up 48.7% last month compared to May 2021 and up month-over-month by 4.1%. 

This is where the hybrid model agencies have adopted post-pandemic will be beneficial, notes Heit. 

“We are two days a week in the office for most of our offices in the U.S., and that saves a lot of money for people,” he says. “We’re going to keep a lot of policies like that in place for the foreseeable future.”

And while travel has opened up again — Heit recently wrapped a work trip to Singapore — he notes, “the cost of air travel has become exorbitant. Of course, as a global agency, Allison+Partners is still going to have to spend on travel, but whenever we can, we are going to try to limit that expenditure.”

“We may decide in-person meetings can otherwise be held on Zoom, Or instead of a visit to a region every eight weeks, we might instead travel there every 12 weeks,” explains Heit. “We are also looking at travel as far in advance as possible, so that we’re getting the best rate.” 

Coyne PR also made “a concerted effort about eight months ago to really look at salaries,” says president John Gogarty, and he says that that decision is serving it well. When it comes to clients, so far he hasn’t seen cutbacks but notes it is a weird time: on one hand, cost of living expenses are up, but people are spending their discretionary income. 

“People want to get out, and so while I’ve never seen airfare more expensive than now, every flight I have been has been jam-packed,” says Gogarty. “You can’t rent a place for the summer on the beach in New Jersey, because everything is sold out.” 

Just as PR agencies did during the pandemic, they can help clients navigate the economic uncertainty and dichotomy,” he says. 

Matt Kucharski, president at Padilla, agrees. 

“This is yet one more time when comms can counsel business leaders to understand what’s going on, because there are so many intertwined factors,” he says. “We have inflation but also supply chain issues and worker shortages. If leaders engage with employees about what is going on, that is going to create further trust in leadership.” 

PRWeek reached out to a number of client-side communications leaders. None want to be quoted for this story, but as one noted, “inflation is having an impact on our spending. But there are several other larger factors at play related to our business operations that are interwoven.”

At any rate, agencies are preparing for another bumpy time.