“That Will Destroy Every Agency’s Talent Model” – More Thoughts on The DOL’s New Overtime Rules

When I was explaining the Department of Labor’s new overtime rules to an ad-agency veteran over lunch, he nearly spit out his drink: “That will destroy every agency’s talent model.”  My earlier post on the subject was a little more subdued, but he’s right that the new rules have potential to shake things up in the staid worlds of advertising, public relations, and marketing services.    In this article, I’ll explore the reason agencies have had lower entry level salaries and how these new rules have the potential to upend the model.

Why Are Entry Level Salaries Low in Agencies

Here’s a hard truth: despite their prestigious educations, most of the people joining elite firms in public affairs, advertising, or market research don’t actually know how to do anything.  Forget about learning skills, most of your first few years in a job are about learning the basics of how to have a job.  Norms of professional responsibility, communication, navigating the organization, and building the basic domain knowledge to interact effectively.  Learning more sophisticated skills comes later.

This leaves firms hiring entry level employees with a sort of gamble.  They want to hire junior people who can turn into great professionals, but right out of school they just aren’t that productive.  Law firms, who pay much higher salaries, have had clients get wise to this and will even push back on either rates or work assignments for junior attorneys.  Right now, firms solve the learning on the job problem by assigning relatively menial work and hoping associates grow into productive team members.

Consider the media monitoring work that’s mentioned in this New York Times article on how the rules will effect “prestige professions.”  It’s relatively tedious, around the clock work that’s easily automated, outsourced to specialist firms, or even done overseas in lower wage countries.  At the same time, performing the work is a great way for associates to learn about the client, the business, and contribute while they get up to speed as professionals.

This try-them-out period is why salaries in professional services firms tend to grow rapidly early in your career.  It’s not uncommon to see double-digit percentage increases at low levels, and salaries that double within a few years.  At that point, the firm has figured out that you have what it takes to succeed, and you’ve figured out that this is the right profession for you.  Those two questions are also why many of the largest firms tend to see the highest attrition at junior levels.

What Do The New Rules Mean for Careers?

Firms are likely to pay lower entry-level wages because they’re still trying out new associates.  But associates have a huge incentive to take these jobs as well.  As the agency executive told me, “The thing about those first few years is that they work you like crazy, but you learn a ton.”  Early years of hard work are critical formative experiences in nearly every professional services firm. The value proposition is that you’ll come here, you’ll work hard, and you’ll learn skills that will carry on to whatever profession you decide to join.  Maybe these new rules won’t have an effect, and firms will find a way around them.  But it’s also possible things could go in a different direction.

One possible future is the creation of two-tiered career paths.  We’ve already seen this in law, where changing economics have resulted in a split between partner-track associates and low-paid contract attorneys.  Years ago, litigation associates at law firms cut their teeth on tedious document review.  Now that work is outsourced to low-paid contract attorneys who have little hope of moving up through the firm.  We could see the same thing in industries like public relations or advertising, where a lot of the low level work is easily outsourced to specialists and software.

Another possibility is that professional degrees will become more important.   Advertising and Public Relations represent some of the last professions where advanced degrees don’t hold much sway.  Professional degrees become a requirement when demand for the professional jobs outstrips supply, but wages aren’t able to go down much further, or when clients need some sort of external validation that their adviser knows what they’re talking about.  That’s why you tend to see professional degrees as powerful indicators even in lower paid professions like social work or library science.  Employers are able to push some of the training costs onto the professional, and two years of your life and $80,000 are very strong signal to the firms that you’re interested in the profession.

Unfortunately, it’s likely that either of these outcomes would have a strong negative effect on diversity, something firms already struggle with.  It’s hard enough for under-represented groups when hiring is done by culture fit, personal networks matter a lot, and low-paid internships mean you need parental support to get started.  These rules are supposed to make it easier for these groups to break in by making it harder for firms to employ them at subsistence wages.  But it’s possible we’ll see the opposite happen: that firms will inadvertently erect new barriers in the form of specialist career paths or higher education requirements.

Firms still have a few months to take a look at their business models and adapt them to the new rules.  The best will figure out a way to preserve their learning culture, attract diverse hires, and still operate in a way that efficiently delivers value to their clients and financial returns to their principals.  But with such a big change in such a short period of time, it will be interesting to see how things play out.