The majority of PR agencies are introducing radical staffing measures – including furloughing, pay cuts and redundancies – to manage the impact of coronavirus on their businesses.
A new PRCA poll of 62 agency leaders, heads of HR and finance, provides a snapshot for the severe impact the crisis is having on agencies' bottom lines.
It also paints a concerning picture about the ability of PR businesses to access business interruption loans.
The findings show that 60 per cent of agencies have already furloughed staff – even if many are unwilling to publicly discuss it or take advantage of the Government’s Coronavirus Job Retention Scheme (see infographic below).
Half of the agency leaders polled said their businesses expect to make some staff redundant, but many respondents have not yet worked out exact numbers.
Several major holding groups – including WPP, Omnicom and MSL – have publicly flagged redundancies as a last resort measure to help contain costs as revenues begin to plummet in Q2.
Half of the agencies have also implemented pay cuts, with the majority slashing 10 to 25 per cent of pay.
Six in ten respondents said they have been financially impacted by the crisis, which indicates that where agencies are asking staff to make salary sacrifices, leaders are usually chipping in.
“The scale of furloughing, pay cuts, and anticipated redundancies dwarves anything seen during the financial crash,” PRCA director general Francis Ingham said.
“At a time when business leaders are making painful decisions for their colleagues, it is good to see that they are sharing the financial burden personally.”
Another important finding from the research is a very low take-up of the government’s business interruption loan offer.
Only 15 per cent of respondents had applied for a loan and a further 10 per cent are planning to.
Three-quarters do not have plans to borrow more from the government.
This can be partly explained by agencies concerned about over-leveraging at a time when there is great uncertainty when trading conditions will return to some form of normality.
As a business owner, I could get:— Nina Sawetz (@nina_future) April 28, 2020
a £5m CBILs loan due over 6 years
a £50k microloan due by May 21
a VAT deferral to Mar 21
a self assessment deferral to Jan 21
all while on furlough & making £0
I predict another huge crash when these deferrals/loans can’t be repaid next year.
Ingham believes the figures indicates a system that is not fit for purpose.
“Given these numbers, the low take-up of business interruption loans shows that there is something wrong with the current system,” he said.
“If the loan model cannot be made to work, then the Government should give serious and urgent consideration to a grants model instead.
He said the industry needs to be “honest with ourselves” that it is likely to end 2020 smaller than it began. However, it’s not all doom and gloom.
“As our international confidence tracker concluded earlier this week, the inherent strength and flexibility of PR means that we should nevertheless be confident about the future, and confident about the strength of the recovery that lies ahead,” he added.