Challenging The Orthodox: #2 Recruiters' Fees

A long time ago, back in the mists of time, an executive set up the first ever recruitment business and said, "What are we going to charge for our service?  I know!  We'll charge 30% of the successful candidate's salary."  And so an industry standard was born.

I have absolutely no evidence to support this scenario, other than that it reflects the totally arbitrary nature of the arrangement.  However there are two facts of which I am pretty certain:

• FACT ONE: Recruiters are no more capable of producing a rationale for charging a percentage of remuneration as a fee for their work than....
• FACT TWO: ....employers can produce a rationale for paying it.

Does it reflect the amount of work that goes into the recruitment process? No. For example, recruiting for employers who are lower quartile payers is often more difficult than for those who are upper quartile payers.  But by linking fee to salary, the fee is automatically lower for what in theory will be a more difficult project.  

A difficult job can take longer to fill.  The recruiter's fee may diminish as a result, or exclusivity may be lost. In some cases, the harder you have to work, the less likely you are to get paid at all. Or, conversely, you may make one phone call to the right candidate and fill the position.

In which case, does the percentage model fee reflect the benefit that the client gets from the acquisition? No, because in most cases the employer has no way to measure the contribution an individual makes to the business.  There is no ROI calculation.

Does charging a percentage have any rationale at all?  Actually, yes.  In theory, a more senior position should make a more telling contribution to the business, will be paid more, and thus will be more expensive to recruit than a less senior position.  Intuitively this sounds right, but it is still difficult to prove with raw data.

Many recruiters, including me, have made good money over the years from the percentage model.  But I can't help wondering whether that executive back in the mists of time didn't do recruitment a disservice by introducing this model.  Why? Because it gave employers an excuse NOT to confront the really important question, that is 'What is the value of our human assets?', but instead, in the absence of a measure of value, a simple way of reducing the cost of its acquisition.  

Even if you cannot point to an ROI figure for your recruitment, it is easy enough to argue that the return must go up if the investment goes down.  Picking an arbitrary percentage figure with no business case for justification gave purchasers of corporate recruitment services an easy target to work on, and that figure was only ever going to go one way.

And it assumed that all recruiters provided the same service (because there was no measure of the quality of the service in terms of ROI), therefore good service equalled cheap service.  There are good recruiters, and there are cheap recruiters, but they are not always the same thing!

Work on producing an actual value for human capital is long overdue (which Chairman has not airily paid tribute to "our most valuable asset" at some stage?). But work most definitely is going on - I refer you this article by Jeff Higgins which is a particularly well-developed example.

If such a standard could be achieved then it ought to be possible, amongst many other benefits, for employers to pinpoint which agencies/sources are producing candidates who contribute the most over time, and which agencies/sources provide the greatest ROI irrespective of initial cost. 

By the same token, such data would allow agencies to point to real proof of success; provide a real measure of value add and a firm basis for premium charging; and help to marginalise the cowboys who undermine the market on both cost and quality.

Such an arrangement has great benefits for both employers and recruiters. If anyone out there has any anecdotal evidence of innovative fee arrangements, or companies using sophisticated HR data to value their human assets I would be interested to hear.

Challenging The Orthodox: #1 Cost per Hire, Time to Hire

'Cost per hire, time to hire' is the modern mantra of the recruitment industry. But like many mantras, the phrase continues to be chanted by rote long after the real significance of the words has been lost. We are told that securing and retaining top talent is a strategic goal for all companies. Significant sums are now being spent on developing employer brands, and there is a recognition that recruitment is no longer entirely the responsibility of the recruitment team. If so, how does the cost of recruitment and the duration of the process contribute to achieving this goal?

Cost and time developed as key metrics some years ago as a reaction to the frankly anarchic situation in many companies, where hiring managers chose their favourite recruiters to work with them with no heed to any terms and conditions. HR got landed with the cost and the responsibility for sorting out any problems which stemmed from an internally unregulated process. While that worked for the recruiters, it was never going to go unchallenged by a professional HR function.  There was a genuine disconnect between what recruiters offered, what was charged and what was delivered.

Unsurprisingly, some ground rules were laid down to curb previous excesses.  PSLs were introduced, agencies traded greater volume for lower price and HR got to exercise greater control over how work was carried out. This was an entirely understandable reaction to what had gone before.

But is there any evidence that running a more streamlined process in terms of cost and time has added to the quality of a company's talent pool?  Are cost and time still the most important and most valid measures of an effective recruiting process?

I know that if you ask any buyer of any product or service they will tell you that ideally they want to pay nothing and have it delivered yesterday, so those issues are never going to be unimportant.  And of course they are pretty easy to measure.  No corporate recruitment function is going to pass up the opportunity to point to concrete evidence of their efficiency.

But do these simple measures of 'success' really encourage the sort of recruiting behaviours which will guarantee delivery of the best available talent over the long term?  If a recruited candidate turns into an unqualified success, is anybody going to remember (or care) 2 years down the line how long it took to recruit them, or even how much it cost? Conversely, if after 6 months a candidate turns into an abject failure, any money or time spent recruiting that candidate will be perceived as a waste. It's the result that counts to the client, not the process.

For agency recruiters, there is already an incentive to work quickly because the quicker they provide a solution the nearer they are to getting paid. However, interest and commitment from the recruiter will very quickly wane without interest and commitment from the hiring organisation. Recruiters will move on to work on what may be more productive roles for them.  They, too, have targets to meet.  Speed does not equal quality.

Similarly with cost per hire. Recruiters' fees have almost always been paid as a percentage of salary.  This is a completely arbitrary arrangement. It does not accurately reflect the amount of work that goes into a process; neither does it reflect in any way the benefit the client derives from the recruited candidate. There is no more connection between good recruitment and high fees than there is between good recruitment and low fees.  Lowering average cost per hire is not an indicator of higher quality recruitment.

So isn't it time that these two hoary old stalwarts were thanked for their contribution to the improvement of recruitment delivery and shuffled off to the sidelines in favour of some newer standards which reflect the needs of businesses now?

Social Media: Let's Get Some Perspective

The rise of social media is a modern-day phenomenon and the idea that any business, particularly a recruitment business, should want to ignore it is madness.  Clearly, social media is particularly well-suited to recruitment: it provides ease of access to information about individuals and their networks; it provides the ability to exchange information rapidly with a community of interested and interesting individuals; it communicates with people in a way that they want to be communicated with. It is an entirely rational response that an industry such as ours is fascinated by the possibilities on offer to improve performance by leveraging its potential.


But I confess to feeling a little uneasy about the prevalence of social media as the only game in town for recruitment at the moment.  Social media is about candidate sourcing, and that is not the same as recruitment.  Good recruitment consists of 3 main elements: defining and articulating the requirement, sourcing candidates, and assessing them against the requirement. Of these, the first is the most important. In truth all 3 are intertwined and have to be performed effectively to produce a good outcome. 


I suppose it may be something to do with the online company I keep, but my unease stems from the nagging concern that some people think that there is some sort of 'Silver Bullet' solution out there - some killer application, some piece of social-media-manipulating software which will 'solve' all our recruitment problems.  The truth is that competitive advantage in recruitment, as in most other industries, comes from doing 100 things across the entire span of activity 1% better than the competition, rather than looking for a complete game changer.


A further danger is that the real value-add for good recruiters, i.e. their ability to spot the right talent for the right job, is diminished if the perception of the client is that somehow the only skill that counts is how and where you find candidates.


Please don't think that I do not value the potential of social media to enhance top class recruitment, because I do. I am very interested to experiment and to learn how others have used social media to improve the quality of the work they do.  I just know that it isn't the whole recruitment story.


Defining the shape of the hole you are trying to fill is the most critical issue in recruitment.  If you don't get that bit right, everything else you do, no matter how up-to-date your methods of sourcing and assessment, will be misplaced.


The development of an individual company's skill to produce a competency model of 'what talent looks like in our organisation' (and it will differ from one organisation to the next), and the ability to assess candidates effectively against this, is at least as important as the development of social media in recruitment.  I would be very interested to hear about companies who might be taking a more scientific approach to talent acquisition to generate a greater and more long-lasting return on their recruiting investment.  Now that really would be something to talk about!

Active & Passive Candidates - What Are They?

There are no such things as active or passive candidates in the recruitment market, there are only good candidates and the rest. OK, I know that at any one time there are people out there who are actively scouring the market for a new job, and many more who are not. But the point is that this is a candidate perspective, not a recruiter one. Where recruiters can go wrong is in looking for sources of new candidates who are not looking for a new role or may be unavailable to their competitors, i.e 'passive candidates', but can still be delivered to them as if they were 'active'. 

I can understand the problem.  I worked for an exec-level job board where much of our early growth came from companies looking to us as a different candidate pool.  They and all their competitors used the same job boards and came up with the same candidates for the same jobs, for which of course they were all in competition. If we were successful for one agency, it was not long before the competition turned up in force.  Good for us, but the same problem for the recruiter.

But looking for active or passive candidates is missing the point.  And it's lazy recruiting practice. Recruiters get paid to find the right candidate. Sometimes it will be possible to find the right candidates from a job posting, as at any one time some, but by no means all of the most eligible candidates will be looking to change jobs. But to be consistently identifying the best available candidates  means getting of your butt and approaching the people your client would want you to be talking to. You cannot expect a 'passive' candidate to come to you. To find the right candidate you need more than one string to your sourcing bow, and with the wealth of information online there has never been an easier time to do this.  Recruiters - get out there and engage!

Direct Sourcing: How Companies Can Recruit The Candidates They Really Want

I read a very interesting piece from the WSJ recently describing a sea change taking place within the corporate hiring world, where in-house teams were now being asked to adopt proper headhunting techniques, rather than sourcing candidates from the response to online adverts.  Clearly the sheer volume of response currently from job boards et al is proving difficult to handle. But is this the only good reason to change tack? As and when the employment market tightens, then recruiters will surely be using every avenue including job boards to source new candidates, as they did 3/4 years ago when the economy was far more buoyant than now.

No, the real issue here is how companies can change their strategic approach to the recruitment of top-quality, X Factor candidates (see blog of Jan 20th, below).

I gave a presentation a couple of years ago at the job board for which I then worked saying that although the bulk of our income came from the recruitment agencies, increasingly our business would be direct with corporate recruiters.  The reason that I gave was that corporates would do their own recruiting simply because they now could.  The networks which had for so long been the private preserves of the headhunting community were now open to all.

So, in the light of this, I have been a little surprised by the way in which many corporates have looked to manage their recruitment process.  Many large corporates still opt to outsource through a rigorously-managed network of preferred suppliers where cost and speed of response are the critical criteria.  Others mix outsourcing with some direct hiring. Where the recruitment is done direct in-house, the processes are very passive, i.e. relying on the internet to provide the answers, filtering CVs from online adverts etc, which is pretty much the same process as many of the agencies use.

But, ignoring the fluctuations in the employment market, does this activity reach the candidates that companies are really looking to recruit? And if companies are going to commit resources to developing an in-house capability, shouldn't it provide a level of service that the market isn't?

There will always be a certain number of top quality candidates looking to move at any given time, but for the most part they will not be looking for a new job and will need to be identified and actively encouraged to consider a change.  This is the essential principle of headhunting.

So is it easy to change the focus for the in-house team?  Short answer: no.  Headhunting requires a different mindset and approach. The internet is a fantastic tool for recruiters, but like every tool you need to know how to use it properly before it works well.

So what may in-house recruiters need to do differently?

• A thorough understanding of the role. Not just a JD, but a close relationship with the hiring manager which should encompass: knowing what the background to the role is; is it new; what happened to the previous incumbent; why recruit now; how does the role fit in to the current corporate game plan; who are the personalities involved; what is success going to look like; what are the potential barriers to success. Understand the competences and the skills the successful individual will need, not just the experience.
• Prepare a target list. Good recruiters can analyse the mechanics of the role and use their judgement to suggest avenues of search outside the recruiting company's core businesses, where appropriate.  Target companies and relevant individuals in those companies.  This is where the internet is so powerful - there is a huge amount of raw information to tap into.
• Develop sources.  This is a key skill.  It should be possible to get information on a candidate before you approach them by talking to someone who has previously worked with them.  Again, the internet can provide the information, there are countless numbers of professional networks/groups/associations out there. Also use internal networks, recently hired individuals etc. Talk to people you rate about people they rate.
• Cold calling.  At some stage, you are going to have to pick up the phone and call someone out of the blue.  You need to have the skill to develop a professional conversation on the phone with someone you have never met.  This is why you must be properly briefed and prepared.  You must be able to start making an assessment of both the experience and character of the potential candidate while you speak.  It helps if you have some prior knowledge of the candidate from your sourcing calls.
• Sell the role.  A huge difference from CV filtering.  Top quality candidates in jobs will need to be persuaded that a change is right for them.  They are not applying to you, you are interested in them, and this changes the whole balance of the process.  It is a two-way street! You need to have very cogent reasons why the candidate should be interested, including a very firm grasp of the employer brand values.
• Management of the Candidate Experience. You have set the process in motion and it is up to you to drive it. Provide any information that you say you will; call when you say you will call (even if it's to say that you can't give any further information currently); manage expectations through the process (especially the timescale); explain the interview/assessment process; try not to change arrangements which have been made.  Remember that, initially, you are trying to attract the candidate. They may not want or need another job, so your behaviour will make a considerable impact on how attractive the candidate sees the company and the role. Keep in regular contact with the candidate.  Be as honest as you can and explain at the soonest possible moment if the discussions will not lead any further.  Always leave the door open to future contact, and this will be easy if you have made a good impression.

This is a very simplified overview of the process, but hopefully it shows that good headhunting starts with a good underlying process which can make the most effective use the internet's reach.

Against the current model, headhunting does have some drawbacks.  It is inevitably a longer process.  Posting a job online will always generate pretty much instant response, headhunting will not. For this reason headhunting doesn't lend itself to the specific requirements of interim/contract recruitment. Although the increased visibility of and accessibility to candidates on the internet at all levels of seniority has meant it is possible to headhunt for a broader range of roles, headhunting is not a suitable process for all the recruitment a company is likely to do, particularly at lower levels. Companies will also need to be fully committed to creating an in-house headhunting resource, and may need to review the suitability of any recruitment software that is used.

By its nature, much recruitment is transactional, an immediate response to an immediate requirement.  But with a proactive mindset it is possible to extend the process 'at either end'.  By which I mean it is always easier to recruit well if you know in advance what you might be recruiting for, and it is always easier to recruit when you already know the right candidate. It makes sense to keep close to the business you serve to understand what the succession plan looks like, where the skills gaps may be, which skills/roles are most in demand, what upcoming initiatives may need resourcing and to better understand the dynamics of the business.

At the other end, the development of talent pools will need a proactive, marketing-led approach.  If the height of your ambition is to create a careers page and hope that candidates apply, be prepared to be disappointed.  The internet will not do it for you on its own.  The internet offers many platforms to support whatever efforts you make to develop a pool of pre-qualified candidates, but, as with the headhunt, recruiters will need to go out to attract candidates into the talent pool with professionalism, a good story to tell, active informed discussion and regular engagement.

The objective of all this is to provide top quality hires.  Surprisingly enough, this means adopting top quality processes. I think the WSJ is on to something....

The X Factor: The Critical Quality You NEVER Find In The CV

The X Factor is a term that I have seen cropping up regularly in recruitment blog posts at the moment. Understandable, I guess, given the popularity of the TV show. But the X Factor, that extra quality which separates the top candidates from the rest, is a really important element in successful recruitment. 

I was talking recently to some old colleagues, and we all agreed that what hiring managers are looking for is primarily the right person, and more often than not the right combination of personal qualities could be at least as important, if not more so, than the experience the candidate had gained. We were all able to give examples of situations where the requirements of a very tight job spec had melted away when the hiring manager was presented with the X Factor candidate.  X Factor candidates do NOT need to tick all the boxes of the job spec to get hired.

So what are these qualities  X Factor candidates possess, and how do they present themselves in the recruitment process? Here are some thoughts:

• Professional: They turn up on time, properly attired.  Never underestimate the importance!
• Personable: An open, friendly manner, easy to converse with.  Able to understand the motivations of others. X Factor candidates are always great communicators.
• Intelligent: Properly prepared, asks searching questions about the brief and the hiring company.
• Insightful: Has an analytical approach and is able to get to the nub of issues quickly - understands the critical issues to manage.
• Honest: Provides a realistic assessment of strengths and weaknesses and career high points and low points; no BS!
• Articulate: Able to communicate complex ideas simply and clearly.
• Commercial: Never loses sight of how his/her efforts fit in to the overall corporate plan.  Understands how their personal contribution can benefit the overall business.
• Able to Challenge the Status Quo: Personally strong enough to challenge existing practices and open to new ways of doing things; possesses an enquiring mind.
• Development Potential: Possesses all the above qualities; shows an appetite for new projects and challenges.

Every management will acknowledge the competitive edge that having top class employees can give their company, but can poor recruitment processes sabotage this plan?  The problem with the X Factor is that it can NEVER be assessed from a CV.

Recruitment which is reactive and two-dimensional, filtering by ticking boxes and done at arm's length, will always run the risk of missing the X Factor candidate.  I am not trying to say that a candidate's experience is completely unimportant, but that it is rarely everything.  For many years hiring managers and agencies have worked to try to make recruitment 'safe' or 'risk free'.  I have seen so much 'safe' recruitment which is essentially about trying to bring in new employees who have effectively already done the same size of job in a similar company. But is this really a strategy to stand out from the crowd? Do you want your employees to be such an unambitious lot? Isn't the real risk that you end up looking exactly like the companies you are trying to differentiate yourself from?

Ironically, for some recruiters the internet, with all the power it can offer, only serves to promote lazy recruiting practices. To get the X Factor candidates, recruiters need to actively go out and look for them.  Of which, more next time!

You Get The Service You Deserve: What Your Recruitment Process Says About You

Recruitment consultants make a pretty easy target for criticism. Poorly briefed, lacking insight, superficial assessment of candidates, poor feedback, difficult to get hold of, won't return calls etc.  These are oft-repeated criticisms of the industry and this list is neither new nor exhaustive. But is it always fair to land all the blame at the feet of the consultant?

I don't want to defend the recruitment industry in general because there is genuinely much to criticize out there. But I remember a former colleague from the publishing industry telling me that customers get the service they deserve. This seems like a pretty valid insight.  Perhaps recruiting clients get the service from their agencies that they, too, deserve?  And what are the consequences in the market?

Consider the following. On a number of occasions I have seen the same job advertised by up to 5 different agencies on the same job board.  I am sure that this has the Procurement people purring with delight but what does the market think? How about this:

• Clients are invariably described as fit, lean, reputable, blue-chip, well-managed or whatever phrase is used to project positive employer brand values.  Where does spray and pray fit into this self-image? 
• The candidate is likely to think that there is a problem with the role if that number of agencies are called on to help fill it.
• If the candidate applies for the role through a number of agencies, they are always told the client name so that the recruiter can 'bag' the candidate.  This is confusing for the candidate and can create problems for the client if one candidate's details are put forward by several agencies. The candidate is also beginning to form an opinion of the ultimate client by this stage.
• These processes are almost invariably carried out on a contingency basis.  The emphasis for the recruiter is to get a CV in front of the client, rather than taking some time to understand the candidate and making sure the right candidate is being put forward.  Candidates are unlikely to feel that they are being effectively represented to the client. 
• The client takes responsibility for assessing CVs, so there is no requirement for the recruiter to exercise any judgement, so there is no real value-add.  The recruiter is still likely to charge a hefty fee for a successful placement, even though the real contribution made might have been no more than to filter CVs. Why spend a lot of money for so little service?
• The process creates confusion, as it always seems difficult to track precisely where a CV is in this process.  The recruiter may have difficulty in getting feedback from the client, particularly when the client has rejected candidates.  Understandably, the recruiter will avoid contact with candidates until advised by the client and that creates frustration all round.

Now clearly, the client will argue that the aim is to recruit a successful candidate, and if a few eggs get broken on the way to making a great omelette, so what? But employer brand values start with the recruitment process. The brand is devalued if 20 people come away with a negative impression of the company, even if a successful recruitment is made. Ask your marketing team. Clearly this isn't the intention, but it is often the result. Unsuccessful candidates may be disappointed, but they don't have to be hostile.

So what can client companies do?

• For many people, their first contact with your company could be through a recruitment process. Make sure that whether you run a psl or an in-house team, initial contact with candidates is professional, courteous, informed and efficient. First impressions count.
• If you manage an agency psl, make sure that you are clear in your mind what value you expect the agency to provide for the fees you are paying them, and communicate this clearly. Reward them accordingly. Hold them accountable for the service they provide against clearly stated performance indicators that encompass qualitative as well as quantitative measures.
• Be aware that the best recruiters do not always work for the biggest firms.
• If you are going to pay recruiters a lot of money, let them do their job properly. Encourage behaviours which will provide you with the best service, not the least worst. Provide them with the tools to do the job.  Take them in to your confidence, keep them in the loop with regard to corporate performance and developments; in short contribute something to the relationship. You will find that good recruiters (yes, there really are some good operators out there) will respond effectively to this.
• Take time to understand the process your chosen agency/agencies will undertake for a campaign.  Your input can avoid duplication and confusion leading to a more streamlined process.
• Give regular feedback through the process.  Explain the reason for any delays.
• Audit your process from the candidate's perspective.  Ask candidates (not just the successful ones) how they found the process.  Apply for a job on your career page and gauge the candidate experience.
• Beware of the law of unintended consequences - see above!

The strength of the recruitment process is dictated by the client.  If the process is poor, it isn't always the recruiter's fault, and the reputation of both client and recruiter suffers.