Could this fix the Broken Recruiting Business Model ?
Posted Sunday, March 30th, 2014
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Could this fix the Broken Recruiting Business Model ?

Published in SatMagazine, March 2014

As an employer, do you think of the word “TRUST” when you think of an outside recruiting resource?  If not, why not?

To answer that, let’s dissect the current business relationship between hiring manager and outside recruiter.

As business professionals, hiring managers must evaluate the value of contracting with an outside recruiting resource versus attempting to recruit critical talent through alternative means including in-house resources. Hiring managers ideally want a trusted resource to deliver top level candidates to their company.

If we were involved in the sales of real estate, both the seller and the listing realtor would benefit from the selling price being as high as possible. To that point, “more is better”.

However, in recruiting, the most expensive candidate is not necessary the best fit or even the best candidate.

The standard business recruiting model establishes the hiring manager at a juxtaposed position from the recruiting resource. Most recruiting business models use a fee structure that is commission based. In other words, the fee paid to the recruiter is calculated as a percentage of the annual earnings of the talent being hired.

In situations where a revenue producer is being recruited, the fee structure can become more complicated when a final fee or “true-up” is calculated 12 months after the sales employee has been hired in order to calculate the final recruiting fee payment based on a percentage of the actual 12 month total earnings of the recruited sales employee.

Not many employers want to be paying a portion of recruiting fees 12 months after they have hired new talent.

From an alignment and positioning perspective, the traditional recruiting business model is the start of a miss-aligned relationship between the recruiter and hiring manager as well a miss-alignment between recruiter and candidates.

The structure of this type of  business relationship incentivizes the recruiter to seek the most expensive talent as it rewards the recruiter with the highest fee. This model encourages the recruiter to give much less attention to any candidates with great potential but lower earnings. On the opposite side is the hiring manager who is seeking the best talent and the best fit. Best Practice Recruiting should attract and consider all qualified candidates, from the seasoned and experienced high earners to the high potential with less experience lower earners. Without objectively seeking a rounded group of candidates, the employer loses and the candidates are underserved.

Some individuals with great potential and lower current earnings turn out to be excellent candidates and excellent employees. I have seen this first hand numerous times.

With a commission based business model in place, the recruiter is not aligned with the needs of the hiring manager. The recruiter has been positioned to reap the highest financial rewards or biggest fee. The hiring manager is seeking the best fit while trying to obtain a sense of candidates being considered. Hiring managers recognize that their recruiting resource has developed some rapport with candidates and hiring managers are usually interested in the recruiter’s comments and insight.

However, if the recruiter is under a commission based fee structure, how comfortable is the hiring manager going to be with the recruiter’s insight? If the recruiter sings the praise of a seasoned, well qualified and highly compensated candidate, isn’t the hiring manger going to wonder if some of the recruiter’s praise is an effort to receive the highest possible commission fee? Even if this is not the case, how much can the hiring manager trust the recruiter’s comments as long as the hiring manager is wondering about the influence of the commission based fee?

Perhaps it is time to reevaluate the outdated recruiting business model and change the conversation.

Most recruiters would agree that it does not take more time to recruit the highly compensated candidates as it does to recruit lower compensated candidates. The effort is the same.

What if the commission driven recruiting business model were adjusted to a fixed fee model?

What would change and what could improve toward Best Practice Recruiting?
·      With a fixed fee, the employer would have a clear understanding of their fee and an easier ability to budget accordingly.
·      With a fixed fee, the recruiter is now equally incentivized to seek the BEST Talent, regardless of current earnings.
·      With a fixed fee, the recruiter is aligned with the goals of the employer’s need to hire the best fit.
·      With a fixed fee, the hiring manager is closer to trusting the recruiter’s insight and comments about various candidates, since the recruiter’s fee is the same regardless of who is ultimately hired.
·      With a fixed fee, there is no need to build-in a “true-up” fee 12 months after date of hire.
·      With a fixed fee, the recruiter can become a valuable resource during the negotiation of an offer.

In conclusion, the recruitment of highly impactful talent is critical for companies to grow today. The value of Best Practices Recruiting is integral to a business’s success. With so much at stake,  trust must be at the foundation. Alignment is what engenders trust between the hiring manager and the outside recruiting resource.

If we change the conversation and adjust the current business model, how much better would the result be for the employer and for the candidates?

Good hunting.