I’ve been contacted by a number of different recruitment firms over the past few weeks who are looking for advice from me on pay structures for their recruitment consultants. This is a good thing. It shows that firms out there are thinking properly about talent management, risk and reward, and employee retention.
Sometimes they are paying fair commissions and sensible base salaries, sometimes they are a bit off the mark and just need a bit of tweaking to remain competitive. There have also been encouraging signs of more expansive-thinking in remuneration packages, with non-monetary additions like Rostered Days Off (copied from our Aussie cousins), days off for birthdays and the fabulous ½-day per month to conduct charity work.
However, from time to time I come across a real dinosaur in recruitment remuneration, which is known as the Deficit Model or “Clawback”. This can work in different ways but essentially it means that if the recruiter fails to reach their target billings for the month or quarter, then the shortfall, or deficit, amount between their target and their actual billings is added to their target for the following period.
Now at first glance this may seem fair enough. If your target is three times base salary to ensure you cover the costs of your desk, and you have failed to reach that target, then you have been a cost to the business during that period, rather than providing a profit. Many professions are a cost to the business but here in recruitment it isn’t supposed to work that way. Your billings are the lifeblood of the firm and if you are a cost, as well as all the non-revenue-generating staff like reception, payroll, IT support, tea lady, then that is not a viable recruitment business.
However, the truth is that this is a model very easy for recruitment owners to implement because it means there is absolutely no risk in them employing that recruiter. If they hit a rough patch and cost you money, they will have to pay back that money from future commission cheques anyway. But the trouble with no risk is that there is often no reward. What many of these firms end up with is recruiters entering a downward spiral. They may hit a few good months at first and all seems rosy. But as soon as they have a bad month, or even a dreaded scratch month (come on, most of us have had one at some time or other), they are immediately behind the curve. Unless they have a stellar month to follow up with, they will see their hard work go unrewarded. This affects morale, confidence, and self-belief. In no time you find yourself with a recruiter initially showing great promise but now, for some reason, lacking in drive to exceed targets, seemingly happy to collect their base salary, with no real prospects of making commission for months to come no matter how good their performances.
This recruiter will leave you and take their recruitment skills, that you have provided training for, to a competitor.
It is easy to say that in theory if the recruiter isn’t good enough to reach their target then they don’t deserve to earn commission in following months. The good billing recruiters won’t fall foul of this model because they are able to bill consistently and not get into deficit. But this is over-simplifying things, especially as we work our way through a patchy economic recovery where billing performances are very much up and down out there.
In practice you will lose the knowledge and skills of a recruiter who may well bill $400k in 2011 and $500k+ in 2012, the only trouble being that money is going into the coffers of your competitor. This is not speculation, this is fact. A senior recruiter recently left a large, global recruitment firm where he was facing 6-months of solid billing performances to get any chance of reaching commission again and paying off his deficit. He has joined a boutique, where his slate is wiped clean and where he will make good commission from day one, assuming his desk is now back on track.
I know of another large global who have recently scrapped the deficit model, at least in their New Zealand operations. This takes bravery from recruitment leaders but you will be rewarded in the long-run. It is out-dated and cannot be competitive any longer.
The way forward is to keep commission plans simple. The simpler the better. If you are a recruiter reading this and you cannot tell me how much commission you will earn if you bill $35k this month, without the use of calculators, excel spreadheets and astronomy charts, then you are not on a good commission plan. And recruitment leaders ask your staff. Ask them how much commission they will make if they can get that last perm placement over the line for November. If they can’t tell you, then you will have problems retaining and building your teams during the busy years ahead.
I would be interested to hear from anyone out there who has experienced this deficit model first hand and your experience of it, good or bad. How does your commission plan stack up?