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December 10, 2007

Avenue A benefits decision driven by profit-margin pressure

Posted by Benjamin J. Romano at 11:30 AM

Microsoft intends to hold Avenue A | Razorfish, the advertising agency it obtained with the aQuantive acquisition, "accountable to deliver profit margins in line with others in our industry," Avenue A President Clark Kokich told employees in an e-mail Sunday night.

He was responding to several requests for clarification from employees who learned last week that they would not be getting Microsoft benefits, as I reported Friday. One reason given last week: Avenue A is in a different industry than Microsoft and, therefore, should have a different compensation structure. Employees who read Kokich's e-mail last week weren't sure whether that would mean more or less total compensation, but many feared the worst.

Kokich's Sunday e-mail, obtained by The Seattle Times, starts to clear up that question and provides interesting insight into how the agency business is expected to operate under Microsoft's new Advertiser and Publisher Solutions group.

"Profits come from creating high value client work combined with disciplined business management. I certainly don't believe that any of our competitors can beat us on either of those two dimensions. So given that we need to deliver industry-benchmark levels of profitability, we need to think carefully when we are considering new expenses.


"If we take on the expense of Microsoft's benefits package, we'll be offering benefits in excess of those offered by our competitors. This might mean that we would have to offer less in other forms of compensation. We need to learn more before we make those kinds of trade-offs. That's why we're planning to conduct further competitive analysis and to hold a series of employee focus groups this spring. We need to get this right."

More than just a difference in benefits, moving to the Microsoft plan would have stripped some Avenue A employees of their titles -- not an insignificant change. Kokich continues:

"In addition, full integration into Microsoft's compensation program would mean that virtually all of our director, vice president, and president titles would go away. These titles are relevant not only to employees, but to our clients, prospects, and to the industry as a whole, especially when we speak at industry events, serve on panels, and pitch new business. It would also require us to adapt to Microsoft's salary and bonus structure. These changes would negatively impact our ability to compete for the best talent in the industry."

Kokich said the benefits decision was not mandated by Microsoft. "We decided this was the best course of action and Microsoft agreed. They listened well and showed a lot of flexibility -- a good sign as we go forward as an important member of the Microsoft organization."

He concludes by saying the changes will not result in a reduction in total compensation and benefits.

Although for Avenue A employees who are watching their peers in aQuantive's Atlas and DRIVEpm divisions get the full Microsoft benefits package, maybe the concern is not a reduction, but a less-substantial relative increase.

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Tricia Duryee
Tricia Duryee
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