Inducements, Kickbacks, Bribes, Sweeteners

May 1, 2007

Blurring the ethics line or just good networking practice?

The employment market is candidate driven these days, and it appears to be a long-term trend. Several of this month’s contributors have addressed the topic and made suggestions as to how to counteract or combat it. Around the fringes, however, there are the kickbacks, bribes, and other inducements to persuade candidates to do what they might otherwise be disinclined to do – namely, to accept the job for which you recruited them instead of another they might have found on their own or through other resources, or to accept a dreaded counteroffer.

We have addressed this topic before because it rears its head on a rather cyclical basis, depending on the economy and the current demographics in the marketplace.

Recently, we heard from a practitioner who, after a long and arduous search for a second-rate client, found a candidate willing to accept the client’s offer – almost. The offer was for $100,000. The candidate had told them that he required either $105,000 or a signing bonus for the $5,000 differential to compensate him for money he was leaving on the table at his old employer. The client was willing to pay the $30,000 fee to the recruiter but was adamantly opposed to paying a signing bonus.

By the time we learned of the deal, the recruiter had already paid the $5,000 to the candidate out of his fee and wondered whether he had done something illegal. “I spent far more time than this deal was worth and was about to see the whole mess flushed over the $5,000 differential. I just figured that if the $5,000 would salvage a bad deal, why not do it?” If companies can pay sign-on bonuses, why shouldn’t recruiters/placers do the same, especially when a few thousand bucks is all that stands between a deal and a disaster?

Although not the most pristine placement practice nor one we advocate, it turns out to be perfectly legal. While it’s not a praiseworthy practice, attorney Robert Style, writing on this topic several years ago in the Inter-City Personnel Associates (IPA) Insta-Com, said, “There is no legal prohibition against recruiters paying a sign-on bonus, or any other incentive payment, to candidates who take a position through the auspices of the recruiter. I do recommend, how-ever, that the fact of this payment be disclosed to the employer if the recruiter has any reason to believe that the fact of payment of the bonus would affect the employer’s hiring decision.”

If you think that some of these tactics are a bit tawdry, just hop on the Internet Express and you’ll find every kind of employment ploy you can imagine. Candidate auctions, referral schemes, bounties, and you name it. It’s no wonder that employers get confused about their obligations and commitments to the real professional talent scouts – us.

Although there is usually more than one way to skin a cat, in today’s economy, we wonder why so many skinners agree to be skinned. Payment for the placement process is a simple proposition, at least for frequent search/placement firm users, and when these situations arise, it is often because the company reneged on something about which they previously agreed. To allow them to change the terms after the placement has taken place (or as it is about to happen) is folly. Every deal should be locked in with a signed fee agreement. We are regularly amazed at how many practitioners don’t take this prudent step. Failure to do this often leads to buyer’s remorse, end-stage negotiations, and “Yeh, buts” and “Oh, by the ways.”

On the flip side of the coin is the candidate who attempts to extort a kickback from a recruiter in return for saying yes to a job offer. This is, as we’ve noted, a candidate-driven market, and what we charge companies for our service is as well known to most candidates as to the industry itself. Many start to think, “Why should this recruiter make a five-figure fee for my placement without sharing some of it with me?” Many seem to know that almost everything today is negotiable, so why not shake somebody down for a little extra? One reader told us about a candidate who had three offers through three different recruiters and told all of them that he would accept the job where the recruiter kicked back the most money.

The main reason we shouldn’t participate in these shakedowns is that we are professionals. Would you ask your family physician for a kickback of part of the referral fee he receives from sending you to a certain cardiac surgeon? Of course not! Nor should we accede to such requests from prima donna candidates who generally have no idea what goes into the process. Our principal relationship is with the hiring company, and the candidate is really only the subject of the transaction – a necessary by-product, to be sure, but also a replaceable one. The benefits to the candidate should be a new and better career opportunity with a new company, and not a reason to put another notch in their financial belt at your expense. If you get to a stage in the process where it even becomes an issue, you never had the necessary influence over the candidate you should have had.

Nor is it unusual these days, when asking sources about others they might know to fill your assignment, to hear, “What’s in it for me?” The establishment of employee-referral bounties by companies has caused people to realize that their knowledge of others is worth money to them. Also, the referral-bounty concept has been institutionalized by a number of Internet firms. Others are coming along every week with a different twist. What’s to keep some enterprising human resourcer from making a little extra on the side by finding out who’s looking for what, then harvesting those types of people from their own company’s database?

One reader told a source that he would be willing to pay $2,500 for the name of any person they referred after they were placed. The source then put himself in contention, ended up getting the job with a significant increase in title, salary, and opportunity, plus a hefty sign-on bonus – then had the temerity to ask the recruiter for the $2,500. The recruiter paid it but vowed that would be the last such transaction. But is this really much different than asking for the same type of help from a network contact? Or paying big bucks for Internet access to this kind of information? Or hiring a freelance sourcer? Would it be more palatable if you had a formalized program to pay for such information? If, in the above example, you said no thanks to the proposal, could the extra research effort to find another suitable candidate have cost you even more than the $2,500?

There’s no denying that this type of thing happens all the time in some offices, but doesn’t it cheapen or demean the profession? Or is it, as some claim, just a cost of doing business in this hurry-up, talent-starved economy?

One solo practitioner uses a network of such referral sources – strategically placed people working for a variety of target employers – to whom he pays from $2,000 to $4,000 for the names of likely candidates. Since these bird dogs don’t get paid until and unless he places their referrals, he tells us, these recommendations are top-of-the-heap A-type candidates. “I call them for almost every assignment I get, and they come through for me at least 75% of the time. One such source who works for a major electronics firm earned over $30,000 from me last year, and he’ll top that this year. He referred 13 people to me and I placed 10 of them. That’s a whole lot less than I would have spent starting each research project from scratch. Paying for information on potential candidates is no worse for our industry than cops paying snitches to solve crimes.”

Do these practices blur or compromise ethical boundaries, or are they just pragmatic solutions to recurring problems? That, we suppose, is up to each individual. How would it look on the front page of tomorrow’s newspaper? A church in our neighborhood has a sign on its lawn saying, “What about ‘Thou shalt not . . .’ don’t you understand?” In view of today’s hodgepodge of methodologies and the fact that many of these somewhat odiferous practices have become specialty businesses in their own right, we wonder where it will stop. Lines are no longer being drawn in the sand; they are being drawn in water. Detrimental to our professional image? Of course! Expedient? Productive? You bet!

We looked at the codes of ethics and professional practice guidelines for the Association of Executive Search Consultants, National Association of Personnel Services, National Association of Executive Recruiters, and the International Association for Corporate & Professional Recruitment. We found them silent on this point except for such gossamer and gauzy words as “professionalism” and “integrity.” The only clause that even comes close is one in the NAER’s Code of Ethics that states, “Members shall refrain from using sourcing techniques which involve pretext or falsehood.”

We asked attorney Jeff Allen about the legalities of paying a candidate to take a job and he also said it is generally legal. In the days when our business was regulated under employment agency statutes, several states barred the splitting of a fee with anyone other than another licensed employment agency, similar to the prohibitions that exist in the real estate industry. Today we are largely unregulated.

We also asked if an agreement could be constructed whereby the candidate has to pay the recruiter back if he leaves the job before the guarantee period expires. Probably not enforceable, according to Jeff, because it could be interpreted as a consumer loan under the FCRA.

He said the guiding principle for these types of transactions is “Volenti non fit injuria,” which is Latin for “One who consents cannot be injured.”

On a slightly peripheral tributary, many of you have reported on the growing number of internal and/or contract recruiters who are cutting deals with pet search firms to kick back a portion of the fee on hires that may or may not have their genesis with the search firms. Hires through job boards, corporate websites, over-the-transom résumé submissions, and walk-ins that would normally not have a fee attached to them are suddenly designated as referrals from their buddies. The fee is paid by the company and then split between the search firm and the internal recruiter.

Another reader has a brother in the HR department of a major company. He is his brother’s clandestine research department, always able to funnel great résumés to our reader for any assignments he has. They split the fees 75/25. Our reader admits that sometimes these résumés were originally sent to his brother’s employer by other recruiters – a good reason for sending coded résumés. But he cold-calls them in such a way that they never know how much information he already has about them or where the information originated.

Without casting aspersions on the corporate recruiting community, this dodge is as old as the hills and was a common practice in the 1960s and early ’70s, when the aerospace and defense industries were desperate for bodies and would hire almost anyone with a pulse. Not surprisingly, it’s b-a-a-c-k!

We don’t approve of these shenanigans and know that they are infrequent, but as one reader told us, “I belong to a split network which has increased my revenues tremendously. When I take this networking activity down to the bare bones, I don’t find this legitimate methodology to be that far afield from some of the shadier practices among those who don’t have these formal relationships. A bird dog is a bird dog!”

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