Recruiter Incentives: Are They Helping or Harming Clients?

The phone rang in my office a few months ago. When I picked it up, a male voice asked, “How are you today?” Even before he identified himself, I knew I was speaking with an agency recruiter. After warily telling him that I was fine, he proceeded to jump into a monologue that did not involve commas, periods, or, as far as I could tell, any intakes of breath. He told me he had seen a web posting of an open position of mine and that he had the perfect person for the job. I actually happened to know the candidate he was selling me. The candidate was not qualified and did not have the work ethic required to succeed at my company. This did not deter the recruiter. He continued to push the candidate, suggesting that all we had to do was meet him and we would see he was perfect for the job.

After finally putting down the phone, it became apparent to me that this conversation was not the recruiter’s fault. The problem with his approach could be traced to the agency he worked for and its flawed incentive structure.

Incentives in Recruiting: Corporate vs. Agency

There are two prevailing methods that are used by corporations and agencies to motivate recruiters. Both are complete opposites when it comes to incentives. Unfortunately, neither method promotes the right activities for successful hiring. For the purpose of this discussion on incentives, I will refer to them as the Corporate Method and the Agency Method. The Corporate Method treats recruiters like any other employee. Corporations believe that since recruiters are in HR, they should be paid a straight salary and periodically receive bonuses, just like their co-workers in finance, IT, engineering, and other functions. The Agency Method, on the other hand, is based on paying a minimal wage (if any at all) and offering hefty commissions based on the number of people recruiters place at their clients’ companies.

The downside of these two methods is that corporate recruiters are given little incentive to aggressively recruit talent, and agency recruiters are given little incentive to build long-term partnerships with their customers. Neither incentive system promotes the recruiter activities that are necessary to ensure successful hiring practices for the companies served. In this article, I will focus on the problems inherent in incentives for recruiters working at agencies. Let me start by describing a successful hire. A successful hire is someone who joins a company, excels in his job, and stays for an extended period of time. In my previous article on talent suitability, I discussed how the key to a successful hire is hiring someone who is a strong match for the right job, group, and company — and where the job, group, and company are a strong match for that person. We do not pat ourselves on the back and say we have made a successful hire the week a new hire starts. The real determinant of talent suitability success is what happens weeks and months after someone starts. What you want are new employees who are productive and stay a long time. When it comes to addressing this issue, agency recruiting incentives are a disaster. Agencies pay commissions to their recruiters based on the number of people they place. Their recruiters typically get paid a percentage of the newly hired employee’s first year salary. Agencies will usually have an agreement with their customers that any new hire who leaves the client company in the first 90 days (in rare cases up to six months) will be replaced free of charge. Based on this incentive system, the Agency Method is detrimental to ensuring quality hires. It cannot build fruitful long-term relationships and can only survive by the “hit and run” tactics utilized throughout the industry. Let me explain. By focusing on quantity, agency recruiters work aggressively to fill as many positions as possible. If recruiters are working on 20 positions concurrently, they will focus on the positions that are fastest to fill and will typically ignore the more difficult or longer cycle positions. As an example, if one company makes slower hiring decisions than a second company, the agency’s recruiters will focus on the company that makes faster decisions, to the detriment of the more thorough customer.

Annie Rihn, head of recruiting at Zillow.com in Seattle, has engaged several local agencies to help meet the hiring goals of the pre-launch start-up. She says, “We offer a unique and challenging opportunity and have an incredible culture. But having a very high bar when it comes to talent standards has caused frustration for several of the agencies we’ve worked with. Some agencies are less motivated to work with us because they can’t get as quick of a hit. The few that have been most successful are clearly focusing on building longer-term relationships and feel much more like a trusted business partner.”

Agency recruiters usually make two other costly mistakes. First, because they are competing with other agencies, and sometimes the customer’s internal recruiter for candidates, they will call and screen candidates quickly, without much attention to detail, as they want to win the “race” for candidate submittals. Second, they will take an aggressive tack with hiring managers to get their candidates interviewed, making comments like “you must see this candidate,” or “he is absolutely perfect for the job.” If hiring managers interview candidates who have not been well screened and who are not “perfect for the job,” the agency recruiter’s credibility is ruined. But with the focus on quantity, not quality, and so many prospects out there, agency recruiters simply move on to the next opportunity. Another poor practice of the Agency Method is the 90-day replacement guarantee. There is absolutely no incentive in this guarantee to ensure the hiring manager and candidate have a happy and productive relationship over an extended period of time. If a recruiter is only worried about a new hire staying for 90 days, there will be minimal effort given to principles of talent suitability.

Fixing the Agency Method

So if talent suitability equals successful hiring, what concepts would agency recruiters need to embrace in order to improve?

They need to build long-term relationships with their corporate customers. Customers want to work with their recruiters over an extended period of time, as it takes a while to learn the nuances of the job and the manager’s hiring expectations. Agencies who invest in their customers’ success over the long term are more profitable.

They need to help hiring managers fill all, not just some, of their positions. Positions are given to agencies for a reason: The manager needs all of her positions filled as quickly as possible. Extra effort should be made to fill difficult positions, as the agency should be concerned about the hiring manager’s success.
They need to become business partners with their hiring manager clients. Hiring managers want to work with a partner, not a salesperson. Poorly qualified candidates who are pushed on hiring managers result in short-term relationships and lost business.
They need to be invested in the new hire’s success. Back-filling a poor hire after only three months is not good enough. If an agency is paid a full commission and its placement leaves after four months, the hiring manager is going to feel cheated.

As you can see, pushing recruiter behavior with commissions for each placement is not conducive to the above values. Recruiters are not motivated to work on all positions; they are rushed to produce hastily prepared candidates; they are motivated to oversell; and there is no downside to a new hire leaving after a short amount of time. None of these points ensure a healthy agency/customer relationship. If agencies want excellent long-term relationships with their customers they should set up incentive programs that reflect the best facets of talent suitability. Hiring people who are productive and who stay a while should be rewarded. Working on all of their customers’ positions should be expected. Ultimately, making their customers successful should be a cornerstone of the Agency Method. Here are some concrete ideas for a new Agency Method:

Set the expectation that all companies and positions are worked on with equal diligence. Incentives for recruiters should be based on the percent of open positions filled for each customer. For example, starting in January, 2006, the success rate for all customers could broken out as follows:
- If 30% or more of requisitions are successfully filled, commissions will be paid.
- If 30% of the positions recruiters worked on from Microsoft are filled, 42% of the positions from Yahoo! are filled, and only 18% of the positions from Costco are filled, commissions would only be paid to the recruiters who successfully filled positions for Microsoft and Yahoo.
- Keep an ongoing tally. If Costco’s success rate goes above 30%, then all successful hires over the year now get paid. If Microsoft or Yahoo! drops below 30%, future commissions are stopped until the proper percent is attained.
Pay commissions based on new hire milestone dates. Agencies could pay their recruiters a portion of the commission at the date of hire, another portion when the new hire has been on board for six months, and the remainder at a year. (The agency should be paid by the customer at these milestones as well. It communicates a strong commitment to the customer’s success, which will itself pay dividends.) Paying out recruiter commissions further down the road demonstrates that the agency and its recruiters are committed over the long term to each new hire’s success. This will not only motivate recruiters to source, screen, and present higher quality candidates, but it will also serve as an excellent retention tool for the agency recruiters themselves. With commissions being paid out over many months, how can a recruiter ever leave?
Pay agency recruiters a higher base salary. The emphasis should be on partnering, not selling. Your customers will appreciate it. Besides, there is nothing worse for your company’s reputation than the voices of increasingly desperate recruiters!

These are only a few ideas for aligning agency recruiter incentives with talent suitability. If your agency utilizes a different plan, or if you’re on the corporate side and you’re aware of other incentive plans that motivate the right behavior, please drop me a line. Your feedback is very welcome. In my next article, I will discuss what can be done to improve recruiter incentives on the other side ó corporate recruiting.