We are constantly asked about the “law” that covers compensation to a consultant when he or she leaves with placements still outstanding. Determining when a “placement” has occurred under these circumstances is a little like trying to figure out when a fetus becomes a human being. Owners tend to sound like abortionists, ex-employees like right-to-lifers. For once and for all, let’s develop an objective standard. You may wish to rank activities with different weighting, but here’s a guide to follow:
1. HOW MUCH DID THE CONSULTANT DO?
At the beginning of a placement is the writing of a job order. At the end, is the expiration of the guarantee period. Even if there is no solicitation of the job order or no guarantee, the equivalent occurs, so let’s look at the 10 key items, and assign 10% each.
ITEM PERCENT
Writing Job Order………………………. 10
Identifying Candidate………………… 20
Recruiting Candidate………………….. 30
Presenting Candidate………………….. 40
Interview (Send-out)………………….. 50
Offer………………………………………… 60
Acceptance (Hire)………………………. 70
Sending Invoice…………………………. 80
Start Date………………………………….. 90
Expiration of Guarantee Period….. 100
Let’s assume your consultant leaves after the first interview (send-out). That gives them a 50% score. Of course, the consultant will argue that the five remaining items required no time or expertise at all. And in isolated cases, this may be true. It may also be true that the candidate was already in your files, and you told the consultant to present him. If you get hung up in these variances, you’ll be right back where you started from, so let’s give all of the ones that look like this 50%. That’s the basic score. Without any other factors, the consultant would be entitled to 50% of the commission when the fee is received and the guarantee period expires.
Now let’s look at the other split factors.
2. IS A COMMISSION SPLIT INVOLVED?
If a commission split applies, we suggest you use your existing procedure. This means that if the consultant who writes the JO gets 50% and the one who provides the candidate gets 50%, that’s the maximum either can obtain when they terminate. In our example, the consultant who leaves would receive 50% of 50%, or 25% of the total commission. The one who remains would receive the regular 50%.
3. WHAT IS THE REASON FOR THE TERMINATION?
While the reason for termination should make no difference, the courts have considered it. You’ll consider it too … particularly if you’re angry or just don’t want to capitalize a new competitor.
The reason for termination can be factored into the basic score as follows:
REASON PERCENT
Voluntary termination to
leave recruiting field……………………. 0
Involuntary termination for
poor performance………………………… 0
Voluntary termination to
continue in recruiting field……….. – 10
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Involuntary termination for
violation of Employment
Agreement or Company Policy…. – 20
4. DID THE EX-CONSULTANT ASSIST IN CLOSING?
Although there ought to be a law against a consultant loitering by rapping with the client or candidate, there isn’t. In fact, some wedge themselves right in between you and that fee beautifully. If you let them, we’ll give them the benefit of the doubt. If you don’t, we’ll penalize them. Loitering is bad for your business.
CONDUCT PERCENT
Authorized communication with
client or candidate………………….. + 20
Unauthorized communication with
client or candidate…………………… – 10
Interference with placement………. – 20
5. WAS ADDITIONAL TIME AND EFFORT REQUIRED?
The consultant says they did everything to make the placement. Then you say you (or another consultant) did everything. The problem is that the commission is only part of the fee, so the court can decide you were just earning the “house” amount. If you accurately document the time and effort expended, and it appears to be extraordinary though, you’d be well on your way to offsetting the commission.
We can’t give you any guidelines here, because each situation is different. You’ve probably thought of additional variables, but this isn’t a formula to split atoms, only placement fees. The world won’t wobble on its axis if you change it, as long as you’re consistent in its application.
It’s like the law – arbitrary, but everyone knows where they stand, and a court can apply it. You may want to incorporate it into your policy manual or employment agreements. To make sure your consultants understand the formula, have them sign something as follows:
__________________and CONSULTANT agree to apply the attached formula in determining the amount of commission due to CONSULTANT upon termination of employment.
