An Auckland-based advertising agency has agreed to pay back the wage subsidy after enjoying a faster recovery from Covid-19 than originally expected.
The move will see independent agency Special Group return the full $203,800 it received for 29 full-time employees earlier this year.
Managing partner Michael Redwood says the agency has reached an agreement with the Ministry of Social Development to pay back the subsidy over a number of instalments.
This is not to say Special Group wasn’t affected by the impact of Covid-19.
The first lockdown saw the advertising market collapse to well below GFC levels, with most businesses reluctant to continue advertising in the face of enormous uncertainty.
Given it was unclear when businesses would resume their marketing activities, Special Group put in an application to receive the government assistance.
“We definitely met the requirements to apply for wage subsidy at the time,” says Redwood.
“The money from that helped us navigate our way through the early lockdown and keep our changes at an absolute minimum.”
The advertising market has since recovered and the latest data from research firm SMI showed that advertising demand in October was only 11 per cent back on last year.
Special Group is so far the only New Zealand ad agency to publicly agree to pay back the wage subsidy and it’s unclear whether others will follow suit.
However, Commercial Communications Council chief executive Paul Head says he knows of several agencies that have refunded the subsidy and others that have reimbursed staff that took salary cuts earlier in the year.
“I estimate that the subsidies to agencies saved in the vicinity of 150 jobs that would have otherwise been lost. Maybe many more. That’s a good thing,” says Head.
“As life has got back to a semblance of normal some agencies have done better than others.”
The fortunes of advertising agencies over 2020 have largely depended on their client base. Agencies that have a higher contingent of Government clients have, for instance, fared better than those working with tourism firms or airlines.
Special Group is among those to have had a stronger bounceback – which is why the agency saw it as necessary to return the wage subsidy.
“We just felt it was the ethical thing to do because this is taxpayer money,” says Redwood.
While critics have slammed the wage subsidy rules for being too lax, Redwood said they needed to be to ensure that companies gained access to the funds as quickly as possible.
“It needed to be based on trust. If the rules had been too stringent then this would have cost the country even more jobs.”
Redwood says Special has been on a decent run since the first lockdown, picking up the accounts of six new clients: Optus Australia, Contact Energy, Tourism NZ (domestic), Public Trust, Partners Life and Charlie’s.
The Optus win was by far the lucrative and high profile, given how unusual it is for a local agency to pick up work for major clients across the Tasman.
The influx of new business has seen Special’s revenue exceed earlier projections and enabled the company to increase its team to around 50 full-time staff as well as few contractors, says Redwood.
Special signalled further global aspirations last month, with the launch of a branch in Los Angeles.
Returning wage subsidy has become a contentious subject in recent months.
As listed businesses started to release their financial results, it became clear that many wage subsidy recipients were still reporting decent profits.
The first businesses to pay back the wage subsidy were the big six law firms, which by May paid back a combined $6.2 million, after facing public backlash.
Other companies to have returned the wage subsidy include Silver Fern Farms (which paid back $43.3 million) Briscoe’s Group ($11.5 million), Metlife Care ($6.8 million), Napier Port ($2 million), Comvita ($104,000) and Cannasouth ($85,000).
There have also been a few controversial hold-outs that have refused to pay back the wage subsidy despite public condemnation.
The most visible among these is The Warehouse Group, which even became the subject of extended discussion during the Leader’s Debates between Labour’s Jacinda Ardern and National’s Judith Collins.
The Warehouse Group recently reported posted a $44.5 million profit in the 2020 financial year but would have been in the red if not for the $67.7 million wage subsidy it received.
Fulton Hogan also faced recent scrutiny after saying it would retain its $33.3 million wage subsidy, despite reporting a bumper $211 million net profit and paying out $83.78 million in total dividends to shareholders.
Many of the companies to have returned the wage subsidy so far have done so because of public scrutiny – something that is only possible among listed companies obligated to report their earnings publicly.
When it comes to the thousands of wage subsidy recipients not listed, the onus often rests on those businesses doing the right thing independently.
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