Consultant Earning Survey – Part II

CONSULTANT EARNING SURVEY – PART II
Observations, commentary & interesting tidbits

COMPENSATION PLANS

Last month’s survey results indicated that the average consultant share of Cash In was 42% – a figure that has been fairly constant through the 20+ years we have conducted the poll. But how firms get to that norm in their compensation programs has morphed a bit over the past few years.

Consultant compensation programs are a major concern to owners. Set them too high and they eat into your profit margin. Set them too low and lose your better producers. With very few exceptions, firms have adopted the ‘step up’ methodology with the commission percentages increasing as certain predetermined thresholds are achieved. One major flaw in this system is encountered when firms ‘roll the dials back to zero’ as the step up term expires . . . usually every January or on the annual calendar date of employment for each consultant.

We spoke with an owner who, in his previous incarnation, was a superstar biller for another firm. He told us, “The main reason I left my previous firm was the inequity in my comp program. Every January, everyone’s commission rate rolled back to 35%. My personal production quickly took me past the 40-45% thresholds to a maximum percentage of 50%, but it seemed unfair to me to get paid half the fee on monies collected on December 31st and only 35% of cash collected two or three days later in January.”

Some firms have recognized this inequity and corrected it by continuing to pay at the highest rate until production fell to less acceptable levels – but they are in the minority.

To compensate for a flawed comp plan, many offer peripheral benefits to above average billers – things like paid health insurance, 401k plans, special parking slots, mini-vacations, car allowances, participation in seminars and workshops, etc. A lot of them seem to feel that all it takes is an occasional plaque, trophy or award to mollify those who would probably rather see more money in their paychecks.

Owner expectations are also an important ingredient in establishing pay plans. If you’re happy with $100k Cash in producers (and their comfort levels are equally low) pay plans can be fairly simple to construct. As noted year after year, in offices where the average production is low, everyone usually underproduces. Conversely, where mediocrity is not tolerated and billing averages are on the high side, everyone produces at that level. Birds of a feather . . .

One survey respondent sets a minimum production quota of $250k per year. Those who fail to meet it after a three-month probationary period are terminated. Those who produce $80,000 for 2 consecutive quarters are given the services of a search research assistant (which, by the way, usually increases their production). Fall below that level for two consecutive quarters and they lose the assistant. Commission rate is a constant 47.5% from dollar one.

Other firms have a ‘look back’ provision in their pay plans meant to additionally compensate those whose production may not have been consistent over the early quarters but have excelled in the annual aggregate.

A few firms recognize tenure as a component in commission payment. Just warming the seat for a period of time rewards the consultant. One such plan’s quarterly production/commission schedule was:

0-12 months 13-36 months 37+ months

$0-20,000 33% 35% 37%
$20-30,000 38% 40% 42%
$30,000+ 43% 45% 47%

One of the more standard plans for a 2-office firm with 19 recruiters is:

Account Executive Compensation:

($2,000.00 per month draw against commissions.)

1st $7,500.00 cash in per Calendar Quarter commission of 25%
2nd $7,500.00 cash in per Calendar Quarter commission of 30%
3rd $7,500.00 cash in per Calendar Quarter commission of 35%
4th $7,500.00 cash in per Calendar Quarter commission of 40%
$30,000.00 and up in a Calendar Quarter is paid at 45% commission.
This process starts at the beginning of every Calendar Quarter.

A $2,000.00 bonus is paid when AE’s cash in hits $200,000.00 and an additional 1% is paid for the remainder of the year.
When cash in reaches $300,000.00, an additional 2% is paid for the remainder of the year.
When cash in reaches $400,000.00, an additional 3% is paid for the remainder of the year.
When cash in reaches $500,000.00, an additional 4% is paid for the remainder of the year.
This process continues to progress.

There are also Monthly, Quarterly and Annual rewards.

Eschewing complexity, many smaller firms have a single commission rate from day one and dollar one. Every consultant gets 45% (in some cases, 50%) of every Cash in dollar. Period.

In a minor modification: $2,000 monthly draw – 50% commission on all Cash in per quarter up to $40k. Anything over $40k per quarter is at 60%, provided the previous quarter was at least $20k.

There seems to be a mini-trend towards a greater number of firms paying a significant percentage of income as a salary (at least that’s what it’s called even though it is amazingly similar to a draw). The days are long gone when you were able to find someone who could sustain themselves for the several months it takes to ramp up to a productive member of the firm with no draw or salary (or just minimum wage). In the first place, that technique didn’t attract very many first-class people and lent credence to the reason for “desk” names where whoever sat there was ‘John Smith.’

Even so, where salaries are paid, commission percentages are considerably smaller and aren’t paid until the desk occupant’s production surpasses the amount of the salary based on the normal commission rates.

Still others let their folks choose their comp plan depending upon their circumstances and individual needs. One such plan is:

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1. Commission only – 60% payout (30% for Recruiters; 30% for Account Manager or the whole 60% for a placement made by one person).
2. Draw – repaid $35k annual draw (25% for each piece of the placement)
3. Salary – $35k annually (22% for each piece of the placement)

One franchised office has the following (which is fairly standard except for differing thresholds as shown in next two examples):

• Pay: semi-monthly on a $2000/month draw against earned commissions. Additional funds, in excess of $2000 can also be drawn as available and requested.
• Startup draw likely waived if performance metrics are met.
• Commission based on escalating percentages of net “cash-in” as direct deposit to your commission draw account.
• Commission percentages based on prior 12-month “cash-in” revenues computed semi-monthly over the prior 12 month period (There are no “re-start” dates).

Cash-in Commission Rate

$0 – $119,999 30% (25% after first year)
$120,000 – $209,999 35%
$210,000 – $299,999 40%
$300,000 – 45%

Here’s another plan:

Commissions:
Paid at the rate of 35% on annual net cash-in from $0 to $100,000
Paid at the rate of 40% on annual net cash-in from $100,001 to $150,000
Paid at the rate of 45% on annual net cash-in from $150,001 to $200,000
Paid at the rate of 50% on annual net cash-in over $200,000

NETWORKS

About 1/5 of the responding non-franchised firms indicated that they were involved in some type of cooperative affiliation with like-minded practitioners. About half of these were members of a formal network, while others had loose informal alliances they tapped from time to time. Networks are like telephones – if you don’t use them, they are worthless – if you do, they can be invaluable generators of additional revenue.

One respondent wrote in the margins of his survey that he had been flim-flammed twice when he worked with other independents outside of a formal network setting (a frequent occurrence according to the calls we receive). Nevertheless, he joined one of the smaller formal networking groups and has increased his revenues by 25% because of the addition of splits with other members, especially when split partners are able to fill assignments he usually doesn’t handle or place candidates outside of his comfort zone.

The 29% of the firms which were franchised offices were not included in the figure above since, by their very definition, they are networks unto themselves – at least that’s the theory and a strong part of the sales pitch to buy a franchise. For some, it works out well; for others, it’s a ho-hum. Again, if you don’t take advantage of its existence, you certainly can’t profit from it. The fact that so many franchised firms join independent networks outside of their own franchises (usually under different trade names than their franchise flag) would seem to indicate some displeasure in the efficacy of their franchiser’s networks.

The advent of the Internet and its growing number of networks (LinkIn, etc.) has changed the meaning of the word “network.” What these cybernetworks often lack are the friendships and camaraderie that develops among the members of the formalized network groups. For those who think that, by paying the big bucks to ‘join’ Monster, HotJobs and others of their ilk, they are cooperatively networking in the traditional sense, we’ve got a great deal on a riverfront arch for you.

THE BIG PRODUCERS

It’s always fun to sneak a peek at the production of the superstars and, perhaps, they can be an inspiration. Although voyeuristic, it does confirm that these exceptional numbers can be achieved. We’ve written about Dallas placement machine Tony Beshara and his multimillions of dollars in placement fees every year and you will find a typical Tony day later in this issue. But others stand out as well. Just a few of the top 22 high billers (and their tenure and specialty area) you can strive to emulate:

$1,871,601 12 yrs. Manufacturing
$963,000 3 yrs. Accounting/Finance
$950,000 17 yrs. IT
$923,000 27 yrs. Engineering
$810,000 7 yrs. IT
$767,000 9 yrs. High tech
$750,000 5 yrs. IT
$733,080 2 yrs. Healthcare
$693,000 7 yrs. Retail
$619,012 10 yrs. Accounting/Finance
$600,000 7 yrs. Legal
$562,297 29 yrs. Hospitality
$550,581 3 yrs. Accounting/Finance
$526,980 3 yrs. Clerical/Office support
$514,000 15 yrs. Real Estate/Construction
$462,000 6 yrs. Sales/Marketing
$452,000 24 yrs. Manufacturing
$425,600 5 yrs. Wholesale/Distribution
$425,000 17 yrs. Sales/Marketing
$420,000 30 yrs. Hospitality
$419,000 15 yrs. Banking
$418,000 6 yrs. Sales/Marketing

Paul Hawkinson is the editor of The Fordyce Letter, a publication for third-party recruiters that's part of ERE Media. He entered the personnel consulting industry in the late 1950's and began publishing for the industry in the 1970's. During his tenure as a practitioner, he personally billed over $5 million in both contingency and retainer assignments. He formed the Kimberly Organization and purchased The Fordyce Letter in 1980.

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