Let’s Revolutionize the Standard Recruiting Model

I’ve been a contingency recruiter for over 11 years. Some days I say to myself, “There’s got to be a better way to do this.”

Think about it: How do contingency recruiters get business? They compete with other recruiters for the privilege of spending their own (or their boss’) money on clients who may hire a candidate we present at some unknown time in the future.

To curry favor with clients and potential clients, we survey the market to provide intelligence about competitors’ offerings, introduce candidates who they can compare to those they’ve sourced on their own, place Monster, CareerBuilder, and other ads on clients’ behalf, and screen out the unqualified.

We consult with them and give them the benefit of our knowledge and experience. All this and more?at no charge!

Clients prefer the contingency model because they perceive little or no risk in using it. If we provide a truly stellar candidate, one they couldn’t locate on their own and desperately need, they’re happy to pay the fee. If not, they haven’t lost anything. The recruiting industry has sold its services on this very basis for years.

Don’t get the wrong idea: I’m not suggesting clients purposely take advantage. I’ve met very few insincere clients.

What I am saying is that we, the contingency recruiters, have trained the marketplace to expect this. We’ve trained the clients that we, the recruiters, are anxious, even desperate, for a job order. We’ve trained the market that recruiters are like taxis (if you miss this one, another will be along any minute).

There’s no need to even return our calls. We’ve trained them that we probably won’t actively work their job anyway, so they should give the job to multiple recruiters. We’ve trained them that our services and our time are worth nothing because that’s what we ask them to pay for it.

Wait a minute! What about those recruiting fees that get paid when the candidate gets hired? Thousands of dollars are hardly nothing!

The recruiter collects a substantial fee for a placement, a fee that far exceeds any costs incurred in performing the actual work of making that placement. Compensation for talented people has been rising, which has driven fees based on a percentage of compensation higher and higher. You can buy a pretty nice car for the average recruiting fee. Or you can pay a $60,000-a-year employee, including benefits, for three months. Is it any wonder that more and more clients see this type of recruiting as too expensive, as a function they want to bring in-house?

Our clients’ customers are constantly pressuring them to provide better products and services, faster, and at less cost. Why are we surprised when our clients expect the same of us, and make changes when we fail to deliver?

Why do we do recruiting this way? We do it this way because we’re accustomed to it. Because that’s how we were trained by our predecessors, mentors, and franchisors. Back in the old days (I can say that because my career started in the early 1970s), there were employment agencies, or companies that found jobs for people for a fee.

The fee was based on a percentage of the wages or salary of the job (sound familiar?). The better the pay package, the larger the fee. There was one major problem. How do you collect a fee from someone who’s unemployed?

Some smart people looked at the problem, and the concept of “employer-paid fees” was born. I remember it well. In 1972, I was out of college, out of the Army, and out of work. The prospect of paying a fee to the employment agency was too scary to contemplate. I insisted on employer-fee-paid jobs only.

From this beginning, the recruiting profession was born. Very little has changed since then. We still work with “employer-paid fees.” We still work on a percentage of the compensation. We still get paid only when the candidate is hired and starts work.

News Flash

In case you have not noticed, the world has changed since the 1970s. We need to adapt, innovate, and overcome. We need to find a new way to do business that better serves the needs of everyone involved: the clients, the recruiters, and the candidates.

Corporations want access to talented people quickly and at the lowest cost. Open positions cost them money. They know this intuitively, even though our accounting systems fail to show it. They don’t want to watch their business plans circling the drain due to vacant positions. They want to be in control of their destiny.

Recruiters want to use their skills to find talented people, introduce them to the clients, and get paid for their efforts. They want to be in control of their destiny.

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Candidates want access to opportunities to improve their lives and careers. They want to be in control of their destiny.

This is where the current contingency recruiting system hits a disconnect. The reward for performing the search isn’t aligned with the control of the process. Recruiters try to find people with a specified set of qualifications (location, education, skill set, background, salary, valid reason to make a job change, etc), interest them in the opportunity offered, and introduce them to the client company. From that point on, the client and the candidate have all the power. Recruiters try to facilitate the process, but our control of the process is a big, fat zero. We have no control over whether the employers offer a job or a candidate accepts the offer. We become observers, watching the process and hoping that something good happens so that we can get paid.

Contingency recruiters are interested in making a placement, any placement, because they need it to pay the bills. This presents a potential conflict-of-interest with the client and the candidate.

Once the process has started, the recruiter and the client start to have a love-hate relationship. The client loves the service but hates the thought of paying the large fee. Clients who pay too many high fees for unworthy candidates don’t keep their jobs. Recruiters love the clients but hate the process from which there is a lot of heartburn and heartache on the way to getting paid. The candidates are caught in the middle.

Time to Change

It’s time to retire the contingency recruiting model and replace it with a model that reflects alignment of responsibility and control. Recruiters would be paid to produce qualified, interested candidates. Fees charged would be based on a reasonable cost of the work being done, plus a reasonable profit margin.

Recruiters could still charge for their expertise and continuing services they provide. Clients would pay for qualified candidates they interview. Recruiters will produce qualified candidates, for which they will get paid, or they won’t produce them and they won’t get paid.

Hiring or not hiring a candidate is the client’s and candidate’s decision. The power, responsibility, and costs would be in alignment.

I can hear the wails of protest already.

This is heresy! Burn him at the stake!

Before you stack the wood, pour the gasoline, and light the match, think about this. There is a long list of benefits to be accrued by changing the system. Imagine how much more efficient everyone could be if the new recruiting landscape was a place:

  • Where there was clear, consistent communication between the recruiter, the client, and the candidates. No need to play games.
  • Where the recruiter becomes a partner rather than a vendor, with the client’s and candidate’s interest first and foremost, rather than their own (making a placement).
  • Where the definition of a “qualified candidate” was clearly understood and agreed upon from the beginning.
  • Where “When in doubt, send ’em out” is no longer valid.
  • Where it no longer made sense to find so-so candidates on the Monster board and present them on the outside chance they may get hired.
  • Where a skilled recruiter could devote serious time to finding the qualified candidates, secure in the knowledge that they’d get paid for their efforts.
  • Where candidates who fit the qualifications were interviewed, as a matter of course.
  • Where recruiters knew their market well enough to determine quickly which assignments were realistic and which were “mission impossible” and communicate it to the client up front.
  • Where there was no fear that the compensation feedback you get from recruiters is inflated to jack up the fee.
  • Where the timetable for expected results was clearly communicated and agreed upon.
  • Where the client knew their financial exposure from the start. Cost would be determined up front rather than through negotiation (of the salary) at the end.
  • Where the recruiter knew that they would be paid for recruiting and presenting interested, qualified candidates.
  • Where there is less angst over the possibility of paying big bucks for a candidate that isn’t worth it.
  • Where the heartburn, heartache, and 11th-hour surprises are minimized.
  • Where the cost of using a recruiter becomes competitive with Monster and CareerBuilder.
  • Where the client’s cost to recruit goes down substantially, reflecting the cost of the work performed plus a reasonable profit margin, like every other product or service in the world!

Instead of a system where a recruiter is living for the big payoff, modify it so that the recruiter works on projects and gets paid for their work. Instead of a system where the client pays nothing unless they make the big payoff, pay for the work that’s actually done. Adoption of this system will put pressure on recruiters to deliver good candidates on time and put pressure on clients to define their needs and wants more accurately.

Good recruiters will find ways to get better and more efficient. Poor recruiters will be driven from the business. Smart clients will learn to define their needs clearly and communicate them to all involved. Not-so-smart clients will end up paying for their own inefficiencies. Candidates will have more opportunities to better their careers.

Pioneers and early adopters will receive the greatest benefits, saving money and improving their performance. Late adopters and laggards will benefit least, when the new cost of doing business is already built into their business model, and the benefits will be much harder to recognize.

Mark is the founder & President of JL Blake, Inc. located in Kalamazoo, Michigan. With more than 35 years experience as a controller, sales manager, and business owner, he has experienced the recruiting business from both sides of the table. Mark blogs at http://futureofrecruiting.blogspot.com. You can learn more about JL Blake at www.jlblake.com and e-mail Mark at mgb@jlblake.com.

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16 Comments on “Let’s Revolutionize the Standard Recruiting Model

  1. What you are basically describing is an end to most third party firms. Just bring on a recruiter as a 1099, pay them an agreed upon price and let them go to work. Good inexpensive strategy to minimize those 30% fees. Thanks for the tip.

  2. Hi Mark,
    I agree totally with what you propose and the reasoning behind it – as long as the recruiter cannot provide true value and deliver what is required by the client.
    There is a disturbing and growing trend in New Zealand (which I assume would be the case in the USA too?) of employers moving away from recruitment companies to in-house solutions. In house solutions are fine if you have the expertise. In New Zealand, most companies do not -due mainly to the fact that 96% of businesses in New Zealand have 19 or less employees.
    With internet advertising being so cheap and easy, businesses have slipped backwards in recruitment sophistication. The high fee structure charged by recruitment companies is too much to absorb and so they rely on this form of advertising They end up with a bucket load of applicants and then use gut feel to choose. When they get it wrong, the cost is much higher than the recruitment fees of course but it is too late then.
    This is why we have set up a company called ‘QJumpers’.
    It does exactly what you say – charge for the services provided – not on a successful placement.
    QJumpers does as little or as much as the client requests and the costs reflect the workload.
    The target clients are not the same ones who are enjoying great service from recruitment companies. There will always be a time and a place for this. QJumpers targets clients who do not use recruitment agents. The service model makes it a lot more affordable for small business to take a more scientific approach to recruiting.
    But the catch – the selection responsibility lies squarely in the employer’s hands. QJumpers in know way pretends to know the business and team culture for every client that they service – this would be impossible considering the small company sizes, volume of small to medium sized businesses and geographic spread.
    Insead, businesses are provided with as much information about each candidate as possible to make their decision a more informed one – therefore reducing ‘gut feel’ recruitment.
    This service is taking off here in New Zealand. Maybe there is a place for this type of thing in the USA? Or is there already?
    Cheers
    Simon

  3. Although not ready to burn you at the stake just yet, I have gathered a small amount of kindling and am looking for matches.

    I see some of your ideas as interesting but am not fully aware of how they would actually work. I think that there are many recruiters who like the idea of making a hit and getting a big fee for that hit. To be able to do something that others can?t do and get paid for that service is on some levels, a thrill.

    I get the feeling that many of your ideas/methods would have the client assuming a greater degree of risk; of having more skin in the game. Few clients are willing to do this for a host of reasons. (Mostly short term.)

    If I were competing with this model, I would tell the client that they have nothing to lose working straight contingency because if they don?t get what they want, they don?t pay anything. Furthermore if they don?t see the new employee?s value as dwarfing the fee in 6 months, they should not hire that candidate in the first place.

    This bottom line ?opportunity? perceived by the client is of course a fool?s paradise but for the aggressive take no prisoners recruiter who sees company’s, as either clients or sources, the model can work quite well.

    I think that one of the problems is that you are expecting corporate America to think. You have been in the biz for 35 years? How much great thinking have you seen and what is the result of that thinking s it relates to the agency/client relationship? Sad huh?

  4. The fee structure and the complete and utter lack of control that the recruiter truly has are two of the main reasons that I am no longer on the agency/contingency side of the business.

    While the recruiter can try and influence both sides of the equation, I would never say that we have control. The recruiter has virtually no control over the client. We have no control over how long a client will take to interview our candidate. We have no control over how long the client will take to give us any feedback on the candidate. We have no control are the stability/funding of the position or whether the position is going to be put on hold a few weeks into the process. We have no control over the client changing the requirements of the position half way through the search. We have no control over the client on what an offer might end up being. We have no control over how the client is going to treat the candidate during the interview or how well the client can sell the position to the candidate. You can go on and on.

    The recruiter also has no more control over the candidate. We only know what the candidate tells us. We can ask all of the right questions, we can prep the candidate to the best of our ability. We can do background check and all of the due dilagence that we can. But, if the candidate tells us that they are not talking to or interviewing with any other companies, we believe them. We believe the candidate when they tell us what they are making and what it would take for them to accept another position. We have no control over how the candidate acts during the interview (or weather they even show up to the interview). We have on control over the candidate accepting an offer or deciding at the last minute to accept a counter offer and stay with their current company. Once again, you can go on and on.

    For several years I worked as a contract recruiter. I think that this was the best of both worlds. The business was paying a set rate for my services. If I continued to produce results, I got to continue the contract. If I was unable to provide the flow of qualified candidates that they were looking for, they had the very easy option of letting me go and canceling the contract. It was much cheaper for the client to pay my hourly rate than to pay a large placement fee for each hire that I facilitated. One of the higher dollar searches that I worked on was for a Director of Compensation for North America for a major consulting company (think big 5). They had already paid a retained search firm for the search but were not happy with the results (and were in the process of suing them to get their money back). I came in and with the help of a name sourcer, was able to give them qualified candidates in only a few weeks. They ended up hiring the top TWO candidates without spending any more money. The entire search cost them just under $30,000 for two hires that both were paid salaries over $200,000. Talk about a win-win. They saved a tremendous amount of money and I made a lot of money at the same time!

    Until enough contingency firms have the guts to change the fee structure, nothing is going to change. Change will certainly not come from the clients. The clients will continue to only want to pay for the hires and not the actual work that is being done.

    Imagine a fee structure that consists of a small fee for each qualified resume that is submitted. An additional small fee for each interview that takes place and an additional small fee for each hire. The client would actually have some skin in the game. If they did not give you an appropriate job description up front, it would cost them money. If they interviewed candidates and kept changing what they were looking for, it would cost them money. If they keep interviewing and never made a hiring decision, it would cost them money. All of a sudden, it is in their best interest be partner with the agency and make the hire happen as quickly as possible. What a concept!

    David

  5. Your not going to like this but regarding the article I think the contingency world has hurt the search business. Years ago it was almost all retainer. Then HR became popular. Then some people opened shops in their basements and found the only way to get biz was to work for free. HR in turn liked this concept thinking Hmmm I can cast a wider net, develope a huge data base to work off of then kiss both the contingency recruiter and retaned executive search firms goodbye. The search biz as a whole has lost some respect beacuse of the contingecy arrangement. Wouldn’t it be nice if all or most recruiters banned together and went retainer.

  6. Mark,

    I recently spoke to a VP that has partnered with a recruting firm to do just what you describe. He pays them weekly for their services. I find it to be a very interesting concept, and am considering offering such a model to my clients in addition to the contingency model.

  7. IMHO, much work that is currently handled by TPRs is due to client inefficiencies that could be alleviated by better planning. That being said, as a contract recruiter who came from the contingency world, I recognize that TPRs play a vital role in recruiting: finding and recruiting candidates that can not otherwise be obtained. For these types of candidates, TPRs are worth every penny they make.

    Cheers,

  8. Mark:

    I asked myself a lot of the same questions 10 years ago and ended up moving from contingency to retained search.

    However I think that clients as a whole are starting to question the billing model for third party recruitment on a more frequent basis.

    Example: Why does it cost twice as much for a 200k search as a 100k search? Is there twice as much work involved?

  9. Mark, we’ve talked about this for years in our firm. My business partner and our CFO has always said ‘If we got paid for everything we do, our fees would be lower.’ Long ago, we switched to a heavily salary-weighted compensation plan for both our permanent and temporary recruiters. This meant less risk for our employees and a lot more client trust.

    Few in our industry could argue that recruiting for jobs at the lower end of the compensation spectrum takes less time or effort. Many industries acknowledge that smaller clients are more costly to service than large.

    Taking the process in-house does not solve the problem for our clients … as third-party providers we are here to offer job-seekers and candidates choice and objectivity. An in-house recruiter will never have that advantage.

    I would relish continuing this conversation with you and others of like minds. Landa Williams, President, LandaJob Advertising & Marketing Talent

  10. Mark,

    Congratulations for taking the courage to express your opinions, even if some are unpopular. I don’t think you sound burnt out, rather you are questioning is the way you currently do business the best way to do it? Nothing wrong with that. In my opinion, the model has changed since the 70’s, 80’s, 90’s and even in the past few years. The advent of Recruiting Process Outsourcing, Vendor Managed processes, Talent Acquisition Process and retained searches have all evolved from the original recruiting model. I believe you have to keep in mind that acquiring and retaining talent for a company is a business function that is as important or more important then anything else they will do. The question CEO’s ask themselves is should we do it or should we outsource it to an expert? Some answer this by bringing experts inhouse, and the comment made from another person about being burnt out, you should become a corporate recruiter obviously doesn’t understand the world of corporate recruiting today. The pressures are as great or greater on the inside of the fence as the expectations to deliver doesn’t diminish. Those business leaders that choose not to bring recruiting internally rely on and budget for using external resources to attract the right talent. You might want to make the pitch to an employer or two that you want to work exclusively with them for a set fee reviewed on an annualized basis, let’s call it free agency recruiting. If you ask enough company leaders about this concept you might just get a few to take you up on it. I wish you well and thanks for the article.

  11. Mark,

    It sounds like the solution for you might be to make the switch from agency recruiting to the corporate side. The things you mention that you are seeing as a contingency recruiter are not what I am seeing at all, which makes me think you may be a bit jaded, or burned out, which is not an uncommon thing in our business. If you are looking to be paid more consistently, on a project or hourly basis, then contract recruiting may be a great option for you.

    I disagree completely with the majority of your observations on the contingency world. I do recognize that there are many recruiters who do experience things the way that you describe, which is why there is so much turnover in this business. It is also why we are able to command the fees that we do. Our job is not easy. But, when we do it well, our experience is night and day different from what you describe.

    I completely manage and control the process all the way through. It starts by truly listening to both the client on what they need and the candidates on what is most important to them in their next role. If that is done up front, the rest of the process goes much more smoothly.

    I do know what you mean though by sitting back and observing and crossing your fingers and hoping a placement happens…I’ve seen recruiters do that in the agency I started out in. I’ve never understood that as it’s so easily avoided by simply asking good questions all the way through of both the candidate and the client.

    When you do that, there are no surprises. You know where the job ranks in the candidate’s view of other positions, if it’s the top choice, back up, etc and you know what they are pre-closed at. Where I’ve seen deals fall apart is when these questions aren’t asked, or are not asked each day…every time you talk with a candidate you need to ask them what has changed since you last spoke, because so many things can change…other offers, raises, etc.

    You also know what the company plans to offer, so that when the offer is given, it is smoothly accepted. That is what the company pays us for and the level of service that the candidate expects.

    A good recruiter adds value, and deserves every penny of the fee that they earn. They also earn a different experience with the client, when they prove their value and become a trusted partner. This results in exclusive or preferred relationships, returned calls in a timely manner (often, access to the client’s mobile for immediate reach), and trust that the candidates sent will be well worth interviewing, so they are generally scheduled with the hiring manager.

    I think a key factor though is if you like the job. I’ve been doing this for over 14 years, and I love it. I look forward to going to work in the morning, and think my job is fun! When it stops being fun, then I’ll know that it’s time to make a change.

    Pam

  12. I have some matches here and would be delighted to cough up the price of a few gallons of gas.

    These guys are like pacifists; ‘if everyone just stopped fighting……’

    If they all went retainer you and I would eat their lunch by offering contingency, as you suggested.
    The reason contingency has been around so long and is the dominant model is because IT WORKS.

    Now, it doesn’t work for everybody but neither does major league baseball, flying jets or brain surgery. Perhaps the answer is: if it won’t work for you, try a nice job with a pension, perhaps your local DMV or Post Office is hiring.

  13. Anthony: It’s not that it’s more work, it’s a greater value. Your clients have rightly or wrongly educated themselves that recruiting is a cost, like onboarding paperwork or advertisements. This is evidenced by the fact that they view the glass half full as an expense, not a yummy beverage. They’re paying a 1/3 fee for a 200k employee who will bring in 1mm in value in 12 months, typically.

    As contingency recruiters, we have a lot of flashy ‘competition’ from usual suspects– online tools purporting replace recruiters, fee cutters, etc. The problem is, we have temporarily forgotten how to sell– how to demonstrate the great value we provide– and we’ve taken the bait that we somehow *need* to change, adapt, become something different, evolve, or die as a species.

    We HAVE to change. You know, the more I hear this, the more I think it’s untrue. Or at least it’s chased me around the globe of logic so far that I’ve come back to where I was when I was first accosted with this imperative.

    Crocodiles are still around after a million years. They are slow, and not good at jumping. Some recruiting trainers cum biologists should have written an article about how the crocodile needs to change.

    We need to change is more code language for ‘buy my product, try my product’, like the ‘video professor’ on TV. I only have to read FORDYCE where I’m reminded episodically that there are consultants [that’s ‘first’ party recruiters for your Frank R., if you’re reading this] producing 1mm a year with barely more than a couple of researchers and a Rolodex. Do we need to change our footing and balance? Yes. Do we need to buy into every pre-bubble-crash online tool and fad? No. Do we need to blame failure on the system? NO! Do we need to speak smartly, trust but verify, cover bases over and over again? Absolutely.

    But let’s get back to the revolution. We should take the recruiting cowboys and tie them up in the barn, it’s cheaper and less stressful. Everyone will be on staff.

    Let’s improve on that: let’s just Walmartify the whole people supply chain officially. We’ll hire Dell’s SC guy to run it, for the country while we’re at it, let’s nationalize it. We’ll line up various employees not looking for work, make long lines of them on the trucking routes and train tracks, supply them with RFID chips, and feed the data into the system. When a client needs a new biological capital unit, or ’employee’ as we used to call them, we’ll send the next replacement worker in from the supply chain! The paperwork will be prefilled. Brilliant.

    What? She doesn’t want to go? She’s not ready? But she has a tag! [She’s in the system]. Not cooperating? Confused? Doubting the move? Dog died? House won’t sell? I don’t get it. Unhappy with the service she received? Take a number. Press one for customer service to be transferred to the next staff person paid by the hour.

    ‘living for the big payoff, modify it so that the recruiter works on projects’

    I can see myself now, going to the party headquarters to buy my work overalls. The sign will read ‘The people’s HR supply store’. I will be issued a standard hammer and sickle, work boots, and be paid by the hour…. I will not be burdened the the trials and tribulations of waiting for my big payoff…

    -TT

    Pam: I’m getting to to enjoy your responses; I’m starting to sense a distinct pattern of focus and self-determination. Somewhere along the line, you must have lost your blurry vision and can’t do attitude…

  14. Hi all,
    I have been reading a whole lot of reviews on this topic that is truly close to my heart. I have my operations in India and pretty much think, its the same all over the world. Recruiters are extremely useful to ‘speak’ the CV, describe the job’market’ and when it comes to actual hiring its the e-sites. In fact I did an informal survey , which indicated to me that companies use consultants simply for two reasons , when they just cant get the right candidates or when they need their competitors information (benchmarking). Our survival thus is limited to either be a problem solver or a value adder never a simple direct service provider the activity so easily taken over by internal recruitment teams using the power of job boards / esites. Two option , as I see it. If the clients pays us for the solving problems, so be it , lets solve more of them. If the client needs more competitors inputs so be it we provide them with a better finise. The issue is how do we make them pay for it. Probably when the CEO needs more inputs he authorises the big five or the international consulting big names. When the HR needs it , they approach us,expecting nil payouts for their company. I guess , today every CEO worth his salt is probably more hassled managing his own staff than his clients ! Lets step in to help our client CEOs.

  15. As a current job seeker and sometimes hiring manager let me chime in about control. I put links to my Web site including examples of my writing on the bottom of my resume. A recruiter submitted my resume and arranged a client telephone interview. During the interview I asked if the company had looked at my Web site which was included on the resume.

    He laughed and said that all contact information including the Web site had been removed from the resume but he had looked me up on Linkedin, clicked on my resume and had checked me out before asking for the call.

    Recruiter works hard to protect his source and the client does his homework on the Internet. I agree about who is in control. But both of us still need you.

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