The element that connects both client to consultant and service to fee is the professional agreement letter. Insuring a mutual understanding of the services to be provided to a client on a search is essential to gain business from the client. No agreement is more effective as a communication medium for the terms agreed upon and your service. It should only be provided to your client once you have gained total understanding and agreement by verbal means. What is written in your agreement should accurately reflect the services, terms and bilateral responsibilities you and your client have agreed to and are best for the level of service dictated by the search parameters and the problem(s) which will be solved by hiring the right person. A mutual understanding of your fee and terms is equally essential – and extremely beneficial for winning a collection case in court.
Several circumstances arise from time to time which require your firm’s consultants to modify the format of the professional agreement letter. Clients occasionally ask us to sign their version of a fee agreement. Whenever you decide to deviate from this type of agreement, consider the following important elements of an effective and fair agreement:
1. Insist on full (30-35%) fees for full service. Yeah, I know. Many of your clients balk at these rates. My suggestion to those who feel they are limited to acceptance of these low-ball fees is this: the 10-20% fees still existent today were imposed in the 2002-2003 era of slow activity. Many of the HR professionals behind this practice were bound by bad economics at the time or fairly inexperienced in search projects during the highly competitive era we have today. A top-producing desk requires only 10-12 grade A searches to maintain high output. This translates into the practical perspective that you can truly afford to say no to many of these low-ballers and better invest your time in identifying the more competitive firms who have had the awakening experience that dictates they must use skilled search practitioners who can identify the passive candidates generally out of the reach of other recruiters.
2. Guarantees, if necessary, should be to solve the client’s problem: filling the position. Promise your best efforts to locate and present a qualified replacement for the candidate who voluntarily leaves your client during initial employment (60 calendar days maximum). Your promise is to present a replacement candidate, not guarantee that he or she will be hired. Do not promise cash refunds and avoid use of such words as guarantee or unconditional guarantee. You have no control over the conditions and treatment of employees your client hires. They do and should assume responsibility for the outcome of the hire. They will make the choice of whom they hire. The client should assume the responsibility of this decision.
3. Prompt payment of your fee should be a required for replacing the candidate. Consider including this phrase, “Our presentation of a replacement candidate is conditional upon receipt of our fee and within ten working days of the initial candidate’s employment.” Your client will place you in the same pile of accounts payables that make payment to commodity suppliers. You are not, or at least should not be, a commodity supplier of search services. The best argument you possess for prompt payment of your fee is found within the higher level of services and added value you demonstrate in solving a critical problem on a situational basis for your client. Commodity vendors have embedded a delay in receivables from companies. Since they continue to supply their customers month after month, they can work with a sixty or ninety day delay in payment for their materials and services.
4. Put in writing that your fee will be computed on total taxable income offered and accepted by your placed candidate. In the event that a bonus is tough to calculate accurately in advance, give the client one of the following options: One, calculate that portion of your fee on average bonus projections or the last incumbent’s bonus; or two, invoice at year-end for actual bonus. Remember the fact that your client will compensate a person based upon what they perceive as a fair and reasonable amount of salary and bonus for the contribution made by your placed candidate. Your fee should be based upon a percentage of that total amount.
5. Regardless of how you conclude fee calculations, be sure to define the agreed terms in a fee agreement letter.
6. State that payment of the fee is due in its entirety the day the candidate starts work. Your fee is earned by the process you provide, not by the performance of your referred candidate. If you suspect that this is the perspective of a potential client, you are strongly urged to clarify the realities with this client. Many a recruiter has had a client terminate a candidate after a two or three month initial period after they gained the insights they sought. Although this is not common, you should make the realities of what you are paid for very clear. When the client demands extended terms and they are necessary to close the agreement, you should only offer terms against your full fee, not in addition to a discount fee.
7. Any agreement must clearly state the length of time, after initial bona fide referral of a given candidate, within which you will be paid your fee should that candidate be hired by the client or its divisions, for any position. One year is normally acceptable.
8. Insure that your client is not be surprised by any of the terms in your standard agreement letter by covering everything contained in it verbally. Then send the letter to confirm by signature.
9. Collection problems do not start when you close the deal – they start when taking the order. Clearly, state your terms up front to avoid collection problems.
Some of our clients push an agreement they use with “agencies.” After review of hundreds of these agreements, I can safely generalize that they are defensive in nature. Most contain elements that are designed to protect the company from damage or injury caused in the past by less than scrupulous recruiters. Where I understand the fact that I must face the stereotype created by bad behavior from some recruiters, I also try to educate my client from our first dialogue about our service and highest levels of professionalism. I also press my client to review my professional engagement letter which is, by its nature, bilateral and very fair to both us and our client without assuming that we would be hurt by a nefarious client.
We are in a strong recovery demanding the recruiting and hiring of highly talented people. These folks are essential to the company reaching its objectives. They will have a defined contribution to the profit-per-share of the company that hires them. We are essential to these companies in effective recruiting, qualifying and referring these people. We will earn our fee by the process we provide; not by the performance of our referred candidate. When a client insists on draconian terms unfair to the recruiter, walk away.
Doug Beabout, CPC, CSP is a veteran of recruiting since 1977. As a working owner, Doug spends a large part of his time in the trenches of his own recruiting practice. His evolution as a recruiter has been the result of his adaptation to an ever-changing recruiting services marketplace. Doug brings these competitive techniques and tactics to his training materials and presentations worldwide. Doug speaks with hundreds of recruiters each month and works with many as a recruiting coach and inhouse consultant and trainer.
