Ask any agency head what makes his or her firm tick and the response inevitably will include some variation on the theme, “Our best resource is our people.” Ask that same agency head, or any business leader for that matter, to identify the quickest way to reduce operating costs, and the answer will likely include words such as “layoffs,” “downsizing” or that infamous semantic dodge, “right-sizing.”

Both responses reflexively spill out of the mouths of corporate decision-makers, and both have logical merit. Like any sector, marketing and communications continually changes with new technology. But the work still requires bright, creative, human brains–it’s still fundamentally about people. But these brains cost money, and it’s hard to argue that companies can save dramatically by having fewer of them around.

In good times, agencies can largely ignore the contradiction presented by these two realities. But these aren’t good times, and the economic downturn has placed these competing knee-jerk reactions directly across from each other, leaving agency leaders to figure out how to escape the situation without breaking any toes.

Marcom firms have certainly felt the brunt of the recession in recent months as clients prune back marketing budgets in an attempt to preserve their own bottom lines. The lack of cash coming in the door has forced several agencies to send prized personnel out the door.

The bad news is these decisions are always painful. The good news is, for firms that have creative leadership, an employee-centric culture and a long-term perspective, they’re not necessarily unavoidable.

“There are a ton of ways to be creative,” says Bernadette Lonergan, director of human resources for Toronto’s Fuse Marketing Group, of the steps agencies can take to cut costs without cutting staff. “Before you take an arbitrary 23% out of your force, there’s a lot you can do.”

One thing Fuse has done is implement an executive pay cut, a move Lonergan says enhanced management’s credibility with employees. The agency is also offering an extra week of vacation–unpaid–for some employees. “And there are about five variations on that theme that we would look at before a wholesale layoff.”

That theme, which recurs frequently in conversation with human resources experts and agency leaders, is encapsulated by the shopworn cliché that time is money.

“One of the things we’re seeing in advertising agencies is, basically, giving time in lieu of cash,” says Nora Spinks, founder of research and consulting firm Work-Life Harmony. “Instead of layoffs, they’re saying, ‘why don’t we provide people with time,’ which allows them to manage their multiple responsibilities and still maintain a career path.”

Spinks believes that, to employees with families, outside interests or a desire for more rest and relaxation–pretty much everyone, in other words–time is a valuable commodity that employers can barter with when the economic climate calls for reduced operating expenses. Dangle the prospect of a few extra days off or an extended sabbatical, according to Spinks, and many employees will jump at the offer, even if it means a reduction in income.

“It’s a win for the community because we’re not paying out unemployment,” Spinks explains. “It’s a win for the employee because they’re able to maintain their jobs and career and fulfill other responsibilities, and it’s a win for the employer because it keeps talent, gives them flexibility and allows them to gear back up again when the economy turns around.”

Brett Marchand, executive vice-president and managing director at Cossette Toronto, has consulted with Spinks and put several of her suggestions into action in an effort to keep his group together.

“We have an amazing team here, so it pains me to think of anyone being let go, so we have done other things,” says Marchand. “We’ve instituted a summer hours program where people get long weekends but don’t get paid for it, and that helped save 20 jobs. We’ve got a voluntary sabbatical program, where, for example, if you want to take three months off to take care of your kids because they’re out of school now, we’ll pay you for a month of it and you can take two months off unpaid.”

If Cossette employees are concerned about the implications of losing two months’ salary, they aren’t showing it. “In fact, we have too many hands up for the sabbatical,” he says, explaining that 15 of the firm’s 300 Toronto staffers have said they’d be happy to take him up on the offer.

In addition to getting creative with time, Cossette’s management has, like most firms, also cut spending on expenses, spending one-quarter of the usual outlay on its recent summer staff party. The agency is also filling any vacancies with people within the company.

Perhaps most importantly, however, Marchand and his senior colleagues have attempted to stay true to their vision for the future in the midst of the calamities of the present.

“We’ve made some decisions to manage long-term client relations and the long-term health of Cossette at the expense of short-term financials,” he says. “We haven’t had a massive layoff.”

Cossette did shed approximately 50 employees in May 2008 after Bell decided to seek out other agency partners in addition to Cossette. That cull, says Marchand, simply could not be helped, as the significant loss of Bell work presented more long-term challenges than the recession, which Cossette’s leadership views as a short-term concern.

Regardless of what prompts a layoff, any agency that makes the difficult decision to send some employees packing faces the challenge of keeping its remaining staff focused on the work that still needs to be done.

“What you get in situations like this is presenteeism,” says Fuse’s Lonergan. “People show up but they’re looking over their shoulder or have one eye on the door.”

Agency bosses and human resources representatives agree that keeping employees’ eyes on the ball, rather than the door, is more than anything a matter of communication. “Everybody’s a little shell-shocked these days,” says Bruce Powell, managing partner at IQ Partners, a headhunting firm that frequently represents marcom clients. “The number-one thing you can do is communicate to your employees.”

Alison King is in the business of communications, so she understands as well as anyone the importance of being forthright with her staff. King is president of Toronto public relations firm Media Profile, which let go roughly 8% of its staff earlier this spring. Immediately after these layoffs, King and her management team assembled their remaining staffers to explain the cuts and give the best assurances they could about the future.

“We had a town hall with staff, we had individual meetings with staff,” says King. “We encouraged people to ask tough questions and also acknowledged and recognized that people would be feeling insecure.”

The bull sessions helped to reassure employees, says King, as did a frank discussion of Media Profile’s priorities going forward. These priorities include an increased emphasis on professional development.

“What this means is that [employees] understand we’re invested in them, and that even though times are tough we recognize that our number-one commodity walks out the door every night,” says King. “And in some ways, with things a little bit slower, it’s a great time to do it.”

Marchand, whose agency has also upped its investment in skill development, agrees. “The irony is, most people are cutting their training,” he says. “My point of view is that this is the time to show leadership and invest in things like that.”

Other executives are finding that the communication processes they’ve had in place for years are paying especially high dividends now that their agencies are experiencing a cash crunch. For example, David Crichton and his fellow partners at Grip Limited keep employees abreast of the company’s financial situation at regular employee meetings, while the company’s “career brief” program encourages staff to identify outside skills and interests that, in some cases, have led to new and more fulfilling roles within the agency.

Over at BBDO Toronto, management also delivers financial updates at regular all-employee meetings. Although the BBDO network laid off 189 North American employees last December, including six from the Toronto office, Siobhan McCarthy, senior vice-president and director of organizational development for the agency, says these meetings have helped to preserve the firm’s positive culture.

“We’ve got a strong reputation here and that’s appreciated by staff, that we’re very transparent,” McCarthy says. “We don’t sugar-coat things. [Employees] can feel confident that if something’s going on, we’ll tell them.”

It’s easy to talk about honest communication when the facts that need communicating are happy ones. As Dom Caruso, president of BBDO Toronto, notes, times like these have a way of separating those firms that walk the same way they talk.

“At the end of the day, most agencies say the same thing about what they do,” says Caruso. “There’s nothing revolutionary about the way they position themselves, and yet they are all very different.”

Some of those differences have to do with organizational structure. Lonergan and Crichton, for example, both work for private firms that can take a short-term financial hit to preserve head counts, without having to sell the idea to international network honchos. But experts like Spinks and Powell believe that making creative, courageous staffing decisions in a time of economic hardship comes down to leadership, regardless of the nature and size of the firm.

“A lot of this stuff doesn’t require structure or systemization within a company–it just requires a leader to take the initiative,” says Powell.

Spinks hopes more leaders take up the call to discover innovative cost-cutting measures. Those that opt to drop the layoff guillotine, she believes, will find themselves unprepared to rebound when the economy recovers.

“The worst thing you can do is say, ‘People are our most important asset,’ and then in tough times jettison all your people,” Spinks says.

To value employees is a governing principle of marcom agencies, but in a recession, the people principle comes with a price. And Bernbach’s words, echoing from decades past, challenge agency leaders to pay it.