Here’s How to Fix Your Comp Plan to Keep the Winners

Aug 22, 2014

Money pile - freedigitalCompensating recruiters – it’s straightforward, right? All recruiters just get a cut of what they bill – yes? Well actually, no!

While this may be the prevalent model in the U.S., in my view this approach is far too simplistic. It tends to suggest that the founders of the business have given no real thought to what they may ultimately want the firm to look like, and how compensation needs be structured in order to attract the best possible talent through every stage without overpaying. Is the business a lifestyle business or are you trying to create something of value and building towards an exit? The disciplines around compensation, profit drop through, and costs will all be different depending on the goal of the business. Owners of staffing firms have to think about why the best recruiter is going to join their company – and why the current top performer is going to stay.

Obviously pay needs to be linked to performance but it should also encourage correct management behaviors such as long-term vision. Recruiters need to be educated on the need for the firm to make a profit so that they are employed in a stable, sustainable and growing business. There is no point in paying staff too high a proportion of their fee income and then end up having to let them go after a bad couple of months. Cash is king and it is the absolute responsibility of senior management to run a good business so that they can retain great talent – and offer great careers.

If recruiters will only stay with your company because you will pay them more than anyone else then you have got something very wrong.  Why? Because for one thing you will end up running an unprofitable and fragile business, and for another – contrary to popular belief – money isn’t everything; the combination of culture and compensation is key.

The Culture Shock

So why is the best recruiter going to want to join your business and why is the best recruiter currently in it going to want to stay? When I interview U.S. recruiters they often tell me they give x% of their fees to their employer. Everything about this statement is the wrong way round, and it is the organization’s culture that makes them think this way. There is no appreciation of what value their employer adds to their life!

Organizational culture is the collective behavior of humans who are part of an organization, and the meanings that the people attach to their actions. Culture includes the organization’s values, visions, norms, working language, systems, symbols, beliefs and habits. It is also the pattern of such collective behaviors and assumptions that are taught to new members as a way of perceiving, and even thinking and feeling. Organizational culture affects the way people and groups interact with each other, with clients, and with stakeholders.

Structure Comp to Reinforce Behavior

Your compensation structure needs to reinforce how you want your company to collectively behave, think and feel. For instance if you want managers or directors to take responsibility for building and generating profit growth in a specific area, then have a bonus linked to their P&L and a proportion of that bonus linked to team behaviors. These could include repeat business with key clients, everyone on the team generating revenue, acquisition of new clients etc. If you’ve set up your compensation structure to reward the most selfish, short term, behavior with the highest reward and praise, then you have no right to be surprized when you end up with a culture of high churn and unhappy people.

Be transparent by explaining how and why you compensate people in the way that you do and demonstrate to employees where all the costs are in running a great business.

How many recruitment companies genuinely share this information with their staff? This information is generally kept top secret on the assumption that if people know it they would immediately leave and set up their own company. In my experience, if someone wants to set up on their own, then they will whether you share information with them or not. They may stay a little longer however, if they are educated about the real costs that go into running a great business, giving them a greater understanding of how challenging it is. After all, if recruiters want to work in the best company, in the best location, receive great training, have the best tools available to help them do their job, work in a great culture and have fantastic career opportunities, then they need to be realistic about how their compensation is structured and be clear on the profit that is generated. If they can’t grasp those concepts, no matter how much they bill, they are not worth having around as they will stunt the growth of your business.

This isn’t about having a warm, fluffy culture where everyone gets a hug and plays nicely all the time; this is about striking the right balance – a balance that enables you to grow a great business rather than a collection of individuals who happen to work under the same roof.

Look at What Other Businesses Are Doing

It’s a good idea to look outside your immediate competitors, and also outside the staffing sector itself for better structure and cultures. There are very few industries where companies are run with completely different compensation structures for everyone and no cohesive scheme in place. It is normal in every company to have some sort of hierarchy, with rewards for success in management as well as sales.

It makes sense that people are incentivized appropriately to build the business. For this you need revenue, but you also need people that are focused on achieving a strategy. There doesn’t have to be a distinction between contingent and search companies here; it is more than possible to run a contingent company with a clear and consistent compensation structure. The easiest way to achieve this in recruitment is to wave the carrot in the direction you want the management to go, i.e. incentivize them to build the business rather than just generate as much revenue in the shortest time possible.

It’s Not Always about the Money

Sometimes the little things can make all the difference, so ask for feedback on what staff actually want. A pool table or a coffee machine could be the sorts of things that make people want to work for your company. You’ll be surprised about what people value highly, but you’ll only find out if you have the mechanism to engage – and then act upon – the feedback.

Think about other compensation methods, such as the achievement of work-life balance and benefits such as a decent health scheme. The overwhelming theme in our company was around food, so we have a whole suite of incentives that enable people to win all sorts of dining experiences, from the very basic lunch out. to dinner with their partner at the best restaurants in the world. What floats the boats of your employees will be different from other companies based on your culture.

A vastly undervalued benefit is training and career progression. If an individual can see they are being invested in and has an understanding of how that investment will continue in the future, then they are more likely to stay with a business. This works best if the training is aligned with career progression, i.e. first they learn how to run a desk with recruitment and subject matter training; then they learn how to manage a team and receive management and leadership training; then they learn how to run a business and how to deliver training, while all the time generating increasing income for the business.

Ensure that they’re made aware of what their next job could look like, what their responsibilities would be and how their role links to the overall success of the company. If people can visualize what their progression and that of the company will be, they are more likely to stay and help achieve that vision than go somewhere else for a small pay rise and a bit more commission.

Keep It Simple

I have interviewed and hired a number of recruiters in the U.S. and elsewhere in the world and it never ceases to amaze me how difficult they find it to articulate how their compensation structure works – and how the same business can reward recruiters in different ways. If each employee has his or her own deal then you end up with a culture of back-biting, mistrust, an impossibly complicated back office system to calculate payments, and, ultimately, a worthless business. So once you have settled on your scheme keep it simple, give everyone a commission calculator so it’s easy for them to figure out what they get for a certain level of performance. This will save huge amounts of management time on unnecessary arguments.

Offer Equity

Perhaps the smartest way to retain top talent is to let them share in the long term success of the business by having a share scheme in place.

Many owners struggle with this, feeling that as they took all the risks to build up the business then they shouldn’t give anyone else a piece of the action. However, there will come a point where you own 100% of a business that will never get any bigger. There is no better way of getting everyone on the same page than giving them a share, and then setting a clear vision and goals. But one of the most powerful ways to retain your staff is for them to be proud of the company they’re working for. And enabling your employees to earn a share of the business changes their mentality towards it – they go from being employees to being owners.

The Ideal System

In my opinion a great recruitment company should run a full life cycle model where each consultant is responsible for generating and executing their own business and the compensation structure should look as follows:

Senior Management: Base salary plus commission on deals they generate (you want them to keep their hand in and show the team that they are still up-to-date with their recruitment skills), P&L based half-yearly bonuses with a portion of the bonus based on team behaviors that are key to long term success. Good benefits and share options.

Managing Consultant: Base salary and commission with quarterly bonuses linked to quantifiable achievements agreed with their director, e.g. deal from everyone on their team, new client wins, achieving a new record on contractors out, etc; the ability to receive benefits and share options.

Consultants: Base salary and commission with benefits and share options.

There is no utopia but these are my views and opinions having tried most options, scaled and exited a business via a private equity deal, and grown a new business on two continents in this economic climate. Running a successful recruitment business in any form is challenging, but you can work to make your life a little easier by taking a long-term view on aligning your compensation structure to the culture. Any short term pain will be vastly overtaken by long term gain. No one washes a rental car, so if you want your employees to take pride in your business how are you going to get them to show the same pride in its success as you?

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