Share incentives rule hits stock market-listed agencies’ profits

Stock market-listed marketing services companies have seen profits dented by as much as 8% as a result of new accounting rules surrounding share incentives.

Research from Marketing Services Financial Intelligence shows the rule, that requires companies to levy charges for any employee benefits under share incentive schemes against profit, has reduced operating profit margins. Its findings call into question how effective share incentives are at driving creativity within large agencies.

According to Bob Willott, editor of Marketing Services Financial Intelligence/ “The importance of retaining the commitment of key people in this type of service industry is critical to the companies’ success, but now that we are seeing the full financial impact of share incentive schemes, is there any hard evidence to show that these schemes are effective at retaining the commitment of entrepreneurs that are the lifeblood of the marketing industry?”

The research shows that listed marketing services companies have seen profits dip by around 1% on average, but some groups have fared much worse. Sir Martin Sorrell’s WPP Group saw profits dip 8.3%, while Huntsworth suffered an 8.6% decline and M&C Saatchi took a 6.3% hit. Aegis, Mission Marketing Group and Chime Communications all saw their profits dip almost 5%.

Marketing Services Financial Intelligence says the new rules make it even more difficult to achieve the traditional, but elusive, benchmark margin of 15%.

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