While designers may cheer that salaries in the industry are rising faster than ever, there is another side to the coin. The continuing rise of employment costs to design businesses is not all good news and in recent months the escalating trend has become even more marked.
Consultancies forced to take on staff to meet growing client demand have been forced to pay a premium for the privilege. Where this is not met by an increase in a consultancy’s design fee-income, the cost inevitably dips into margins.
In its last Marketing Monitor design sector report for the first quarter of 2000, accountant Willott Kingston Smith noted that design consultancies “have employed highly remunerated staff (compared with the income they handled) and experienced a fall in profit margins as a result… Employee numbers have increased, but the amount designers are paid has increased by far more”.
The well-documented lack of “good” designers and design managers is not the only reason to blame, although the laws of supply and demand inevitably see wages hiked when supply is short. As a result of this fragile situation, design consultancies are being forced to take advice about how to put the lid on staffing costs in order to maintain profitability.
Amanda Merron, partner at WKS, says more design groups than ever are seeking advice. “We are currently advising a lot of our design consultancy clients about how to meet the escalating employment costs [of employees],” says Merron.
Paula Carahar, a consultant at recruitment agency Major Players, agrees that employment costs are rising. Since the start of the year there has been a noticeable acceleration in salary levels, particularly for middleweight and senior designers, she says.
“Salaries have definitely gone up more than usual,” she says. “Because of the real shortage of good talent, anyone who is any good can play the field and almost name their price.”
“What we are also getting is a lot of counter offers from consultancies. If a designer is offered a new job somewhere else at a higher salary, their old company will often make a better counter offer in order to keep them.”
This practice of counter offers is evidently putting an upward pressure on consultancy employment costs, compounding the already sensitive problem of paying for talented design staff in short supply.
Ann Sharman, managing consultant at recruitment agency Price Jamieson, agrees that an upward pressure on employment costs is not helping smaller consultancies looking for designers. The big groups, she points out, will stop at almost nothing to find the right people, particularly within branding, corporate communications and digital media, she says.
“The smaller companies are feeling the pinch because they can’t afford the design staff they would like,” says Sharman.
Croydon design group Pyott Design is hunting for designers in graphics and digital media, and has had its fair share of difficulty finding staff. Founder James Pyott fears that the repercussions could be disastrous for some of the smaller consultancies if the employment costs of senior designers continue to rise.
“I think a lot of design consultancies are going to go under unless they recognise the problem. What the designers sometimes forget is that if we are not profitable as a company then we cannot employ them. The more senior designers are going to price themselves out of the market for the small- to medium-sized design consultancies. I’ve even heard of some small companies paying huge amounts for senior designers. It can’t be sustained,” he says.
The positive side, says Pyott, is that the design sector has become intuitively flexible to respond to new demands placed on it. “The one good thing about design groups is they are very flexible and can adjust well to different conditions,” says Pyott.
Merron says that the key to containing employment costs is to find other ways to remunerate people, a practice espoused by the digital media sector.
She suggests setting a percentage of company profits as an incentive fund that can be shared out through the year. This could be tiered so the higher the profit levels the greater is the proportion of money put into the fund.
“This can be shared out subject to objectively measured performance. Some of it could be used as a loyalty bonus which would be collected by employees a year on,” suggests Merron.
Two other alternatives are using the Government’s All-Employees Share Scheme and the Enterprise Management Incentive Scheme which launch in August, she adds.
Pyott, on the other hand, is not so sure this can be achieved in the smaller consultancies. “When does an employee provide anything over and above their normal contribution?” he asks.
His solution to the escalating employment costs has been to recruit junior designers, growing and training them internally. But it seems that it is a tactic he has had little choice in selecting.