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The Recruiting Industry is Broken (Part 3)

March 31, 2017 by Kurt Wilkin

Reason #2: You’re a Good Negotiator

In Part One of this series, I talked about the traditional recruiting industry and why I firmly believe it is broken. We talked about misaligned incentives inherent in the “contingent” recruiting model and their commission-only compensation models. And we highlighted the fact that contingent recruiters are in direct competition with Y O U, the client, for talent.

In Part Two, I highlighted the fact that the contingent recruiting industry is built on speed. Speed that is necessitated not by your desire to make a quick hire, but because they need to beat all the other recruiters (and you) to the punch!

In this installment, we’ll get behind the scenes and talk about a dirty little secret in the contingent recruiting industry. In the database of contingent recruiters, as you can imagine, there are good candidates and not-so-good candidates. Obviously, they do their best to place the good candidates – but what about the not-so-good candidates?

When Your Negotiating Skills Work Against You

Most of us like to think of ourselves as good negotiators. You may be proud that you were able to negotiate your recruiter fees down. Sure, their standard rate is 25% to 30% of first year, annualized compensation, but everything is negotiable, right?

Well, your negotiating skills may actually be working against you.

Market rate for contingent recruiter fees typically range from 20% to 30% of the hired candidates’ first year annualized compensation. Let’s say you negotiated your fee down from 25% to 15%. For arguments sake, we’ll assume your recruiter had other clients who did NOT negotiate their fee down to 15%. In fact, their other clients agreed to pay 25%. Do you honestly believe that you’re getting that recruiter’s best candidates? Think about it. I can pretty much assure you that the other company is getting any good candidates while you’re getting someone else’s rejects tossed over the fence and your recruiter is “hoping something sticks”.

Recruiting in the Real World

This time last year, a CEO friend of mine called me to commiserate. He shared with me that his team had experienced a lot of churn and had made a number of bad hires over the past year. Given the growth he expected the next year from his sales team, he seemed overwhelmed. His voice cracked and he sounded almost desperate as he relayed this story.

The more I dug in, the clearer the situation became. The company was bootstrapped and was a microcosm of their CEO. Savvy and cost conscious, he had built the company from the ground up with no outside financing. Historically, most of their hiring had either come from the CEO’s network or had been personally interviewed by him. As the company grew, he put more and more of his faith in his team to make hires. Unfortunately, his team was time-constrained and, they were outgrowing their own capabilities. They spent so much time getting through the day and putting out fires that hiring became an afterthought.

As a result, they were relying on outside recruiters more and more…recruiters who preyed on their sense of urgency and their lack of time and focus. The results were not good. Recruiting fees mounted, turnover increased and their culture became toxic – Glassdoor reviews were not their friend.

At this point, the CFO put her foot down and said no more 25% to 30% recruiter fees. From now on, “if a recruiter wants our business, they will agree to 15%. If not, there are plenty of other recruiters who will.” And she was right, there were plenty of recruiters who would agree to a 15% fee. However, there weren’t “plenty of recruiters” who were willing to send their best candidates for 15%.

A Downward Spiral

To my CEO friend, it felt like the cycle worsened (and it had). Overwhelmed hiring managers got bad candidates from recruiters, who were making easy money off of other companies’ rejects, and more and more of the good employees were quitting, causing even more problems within the company. The wheels had fallen off and my friend was in the middle of a downward spiral.

As I dug in, it became obvious. My friend had outgrown many members of his legacy team. And throwing bodies at the problem was not the solution. No matter whether “the bodies” cost 15%, 30%, or something in between, it was not working.

The Solution

I encouraged him to take a step back, look at the big picture, and develop a plan for talent that aligned with his plan for growth. We conducted a Strategic Talent Planning™ session and developed a multi-year Talent Plan, which included some key, strategic hires early on (including a CFO, VP of Marketing and a VP of Product Development).

It wasn’t easy or immediate, but the effect that those three key leaders have had on his team can’t be overstated. Not only have they had a positive impact on the leadership and culture of the company, but they are now doing much of the hiring. And they are hiring talent capable of getting them to the next level. They are not just “filling seats” with bodies.

While there is still doing plenty of hiring to be done, with the right leaders in place, and following a fully developed Strategic Talent Plan, hiring is becoming a best practice. And good things are happening.

Next time, we’ll take a closer look at Reason #3: When One Out of Six is Good.

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