Fee Negotiations

Consultants don’t like to admit their fees are negotiable, but over half the ones referred for collection to attorneys are below the amount on the fee schedule.

This says two things: Reducing fees is a common way to do business and a common way to invite collection problems.

This shouldn’t surprise you. Compromising your fee is compromising yourself. It’s as though you’re telling the client, “I really don’t believe my services are worth what I charge.” Oh, you don’t say it like that. You just agree to the client’s standard fee. Or you don’t clear the fee at all.

If you want to compromise yourself, that’s up to you. If you don’t agree, they simply work with your competitors. The result? Compromising your fee is compromising the recruiting industry.

There are times when fees can be negotiated downwards, but they are rare and should benefit you in other ways, e.g., an exclusive contract, multiple openings, etc. But the trend is moving towards cutting fees on every deal. Here are some philosophies designed to show you how to slam the brakes on this downhill rollercoaster.

1. BELIEVE THE FEE IS FAIR

There is a perception among consultants that the fee is “too high.” This is frequently conveyed to the employer. It’s essential that you recognize this and deal with it before we go any further. If you need justification for the fee, check out Chapter 13 of The Placement Strategy Handbook. (http://www.searchresearchinstitute.com/) And keep a picture of your dependents on your desk. If none of these things work, maybe the answer is to lower the amount on your fee schedule so the exceptions become the rule.

Stephen Gillers advises in I’d Rather Do It Myself, a primer for lawyers:

The belief in the value of what you’re selling must be yours . . . If you know it, so will the client. If you don’t, most of your clients will eventually know that too. If you lose the client because you want to get paid, you’re better off in the long run. This will be as true in your tenth year as it is in your first week. You sell time and, despite your willingness to work hard and sleep on your desk, there is a finite quantity of time available for sale… [This is] the only time … when your interests and the client’s interests will conflict.

2. EXPLAIN WHY THE FEE IS NOT NEGOTIABLE

The most persuasive reason for the contingency consultant is that it’s not even a fee unless you locate a candidate who is hired. You bear all the risk of fully performing and not getting paid.

There’s only one advantage to contingency-fee placement: Flexibility. In exchange for no commitment on the part of employers to hire, you can work with anyone you like.

Here’s how I recommend you reply to “We only pay a maximum of 20%.”

Our fee schedule is 1% per thousand dollars of annual starting salary to a maximum of 30%. We don’t negotiate the fee because we have no way of knowing how much time, effort and expertise will be required to locate and recruit qualified candidates for you. If we reduce our fee, you’ll be competing for our resources with other clients who pay the standard amount.

This is the same with all contingency-fee recruiters. The difference is that we tell you, because we want to devote the maximum resources to assisting clients. So unless you’re willing to pay a non-refundable retainer for exclusive assignments, reducing the fee of a competent recruiter is just reducing the scope and intensity of the search.

Since you won’t even pay a reduced fee for unqualified candidates, you’re just going to be wasting time interviewing them while critical openings remain unfilled.

We bear all the risk. If you don’t hire, you don’t owe anything. But we think you’ll feel differently about our fee when you see the quality of our candidates.

It’s a “value-for-value” relationship.

In How To Sell Your Ideas, Jesse Nirenberg explains why this approach works so well:

[Y]ou have to sell the fairness of all your offers … If you don’t justify them, it seems as though your guiding principle is to get the most for the least. Giving this impression hurts the relationship. For it means that you’re willing to deprive the other person of what he should have… If you finally accept much less than your initial request, the other person is likely to think that you’re trying to get much more than is reasonable.

Most employers don’t have the vaguest idea about the amount of time, effort and expertise that goes into earning a placement fee. That’s because they don’t care. But they care about filling that requisition, and if agreeing to your contingency fee will fill it, they’ll agree. Starting as recruiters, we never realized this. Then we became HR managers.

3. REMEMBER YOUR ROLE

Unlike other hiring sources, a recruiter is an extension of the employer’s staff, so it’s natural that you want to develop a long-term relationship. You might even think reducing your fee is a way to do it. Just the opposite is true.

Your willingness to modify your terms should increase with the number of placements. That way, you’ll know whether you’ve got a client or merely an employer. You’ll know whether the hiring authority accepts your recommendations, or whether you’re just a glorified employment interviewer. Most importantly, you’ll know whether it pays your fees regularly.

The predictability of an ongoing relationship is worth money, so extending a guarantee, reducing a marginal fee, or going an extra step is something that will come naturally.

Just be sure you follow the advice of John Ilich in Power Negotiating:

[B]e certain that the concession [does] not transfer negotiating momentum to the opponent. The best way is to be certain the reason for making any large, initial concession is fully explained prior to making it, so that there is a realistic basis … and the opponent does not gain the impression that it was made because your position was weak. In addition … concessions should be made on a “something-for-something” basis. You say, in essence, “Okay, I’ll concede this if you will make a correspondingly large concession.” …

[T]hus, the danger of momentum shifting to the opponent is greatly minimized.

Reducing fees with an employer that hasn’t become a client is swinging on the fees trapeze without a net. We used to spend hours at monthly HR management meetings talking about it. Those who paid full fees were regularly embarrassed by those who didn’t. And the credibility of the high-fliers who swung back and forth was lost forever. The lowest percentages became the only percentages. Everyone knows about circus people.

If your fees are too high, lower them. But don’t compromise them!

POINTS TO PONDER

RECOGNIZE THE HIRING AUTHORITY’S INSECURITY

Over sixty percent of fee reductions prior to placement can be traced to some hiring authority trying to make themselves feel or look good.

You’ve probably asked for it anyway … soliciting from an ad, Internet posting or directory … sounding so enthusiastic about being able to place people … stressing that you’d like to develop a “long-term relationship.” Promising, but unable to really know whether you can deliver can make you very vulnerable.

It doesn’t do any good for you to characterize fee-feelers as “wrong,” “incorrect,” “inconsiderate,” “shortsighted,” “unprofessional,” and much worse. Or to state, “I’m trying to show you why you’re wrong” instead of “I understand your concern.”

People in human resources are always afraid of losing their jobs. If they’re not filling the requisitions, management wants to know why. If they are, they’re working themselves out of a job … and spending too much to do it.

The insecurity of the hiring authority can work for you, though. If they’re serious about hiring, you really can find them the best employee faster and with less risk than any other way. If they’re not serious, get off the phone.

KEEP YOUR SENSE OF PERSPECTIVE

A decade ago, one of our industry trainers noted, “We just take people out of one rut and put them in another.” He’s still trying to explain he wasn’t serious. He was just putting things in perspective. We’re all just passin’ through.

If you approach the subject of fees in a rigid “client or source” way, resistance is likely. You have your bottom line, but you’re not there yet. Even the most insensitive hiring authority can sense the difference between an ally and an adversary. Instant intimidation never made a placement. Intuition, insight, intelligence, information and interviews do.

A variation of this is the negative “You wouldn’t want to pay these fees anyway” attitude. It should be obvious that if you don’t believe the fee is fair, you’ve negotiated it away before you’ve even picked up the phone.

DON’T BE DEFENSIVE

Adversarial situations continue longest when either party fires back in the face of a real or imagined attack.

If the best defense is a good offense (and it is), live the words from my book, How To Turn An Interview Into A Job:

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Recruiters are successful because they know where the action is in the employment market. They know employers from the inside, where intramural politics and morale hide. They know who has exciting products on the boards and who is about to lose key employees. They know who promotes from within and who stifles creativity. They know who pays well and who has high turnover. They know [because] they listen,

So what if he says your fees are “outrageous?” Or says, “everyone knows they’re negotiable.” Or if they call you a “headhunter.” Or something else.

Let people like us worry about making the world safe for placement.

FOCUS ON THE CANDIDATE

You probably never thought about it, but the hiring authority isn’t particularly interested in talking about your need to be paid the fee … it’s academic to them … ‘contingent.’ Their need is to talk about candidates. That’s why there will be problems in collecting no matter what you do. You have to satisfy their need before he has to satisfy yours.

Follow all the standards … clear the fee initially, use confirming letters (with their signatures, if possible) or Email confirmations and assume the client loves it.

Then you can show him that you were as excited about getting paid as he was about hiring someone. There are ways of dealing with fee-avoiders.

NEGOTIATE – DON’T DEBATE

Consultants too often forget that they’re negotiating, not debating. They start out like a lawyer with an “opening statement” about why the fee is justified, and set about to meet their “burden of proof” with brilliant oratory.

Of course, it’s inevitable that either side will spend some time debating. That’s part of explaining your position and exploring why the client has less appreciation than you for the time, skill and effort required to find qualified candidates. But most recruiters allow this to go from a dialogue to a monologue.

According to one of our colleagues, Henry Calero, in Negotiate The Deal You Want:

In the average situation, [debating] takes up about 50% of the time expended. When efforts to convince the other side of the rightness of your position take up more than that amount of time, you can be sure there’s trouble. It’s not explaining or exploring any more. It’s a contest … someone’s trying to win debating points.

Since you won’t be compromising your fee, there are only two items to mention:

a. Your guarantee. (Extending it … in exchange for immediate payment.)

b. An installment payment. (30, 60 and 90 days in exchange for payment in full).

Often, even these items need no compromising if you just let the hiring authority talk themselves into them. The fee isn’t even due unless someone is hired, so most of the objections you hear are hypothetical comparisons to ads, job boards, employee referrals, trade associations, public agencies, etc. Just pointing out their expense or ineffectiveness is enough. Any experienced hiring authority who keeps talking is your best salesperson.

If you hear about the problems the employer had with another consultant, smile. “Once burned, twice shy.” But “Once satisfied, twice as loyal.”

DON’T CAVE IN WHEN THE CLIENT IS READY TO HIRE

This is such a common trap that you should have a sign by the coffeemaker that reads:

WHEN YOU HAVE A CANDIDATE WHO THE CLIENT WANTS TO HIREYOU ARE IN THE BEST NEGOTIATING POSITION OF ALL

The manager should become the TO (takeover) person. It’s the time to make a quick concession about something other than the fee. The time to be cooperative. But the time to make it known, in writing:

IF YOU HIRE OUR CANDIDATE, YOU OWE THE FEE!

You’re on the high side of legal seesaw for the first time since you took the job order. It makes no difference how well you climbed on. You’re there now, and it’s up to you to hold on to the handle: Full fee. Nothing less. What do you say? How about:

“It’s easy … just don’t hire!”

More than thirty-five years ago, Jeffrey G. Allen, J.D., C.P.C. turned a decade of recruiting and human resources management into the legal specialty of placement law. Since 1975, Jeff has collected more placement fees, litigated more trade secrets cases, and assisted more placement practitioners than anyone else. From individuals to multinational corporations in every phase of staffing, his name is synonymous with competent legal representation. Jeff holds four certifications in placement and is the author of 24 popular books in the career field, including bestsellers How to Turn an Interview into a Job, The Complete Q&A Job Interview Book and the revolutionary Instant Interviews. As the world?s leading placement lawyer, Jeff?s experience includes: Thirty-five years of law practice specializing in representation of staffing businesses and practitioners; Author of ?The Allen Law?--the only placement information trade secrets law in the United States; Expert witness on employment and placement matters; Recruiter and staffing service office manager; Human resources manager for major employers; Certified Personnel Consultant, Certified Placement Counselor, Certified Employment Specialist and Certified Search Specialist designations; Cofounder of the national Certified Search Specialist program; Special Advisor to the American Employment Association; General Counsel to the California Association of Personnel Consultants (honorary lifetime membership conferred); Founder and Director of the National Placement Law Center; Recipient of the Staffing Industry Lifetime Achievement Award; Advisor to national, regional and state trade associations on legal, ethics and legislative matters; Author of The Placement Strategy Handbook, Placement Management, The National Placement Law Center Fee Collection Guide and The Best of Jeff Allen, published by Search Research Institute exclusively for the staffing industry; and Producer of the EMPLAW Audio Series on employment law matters. Email him at jeff@placementlaw.com.

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