If your business uses or has ever used a recruiter, you probably know how it works. In essence it’s simple: you work out which recruitment company works best for your business, make contact with them, lay out exactly who it is you’re after, sit back and let the recruiter send through a string of applicants for you to screen and interview. All of which can cost upwards of 15% of the individuals annual salary.
Whilst this can be a great service saving you time and energy which can be devoted to your business and growing your empire; you also have to ask the question who does your recruiter really work for?
Why did we ask this question?
The reason we asked this question is simple, we looked at the business fundamentals and asked is the manner in which recruitment consultants are remunerated aligned with client goals?
The recruitment industry thrives on churn – the number of people changing jobs each year, if we all just stayed in the same job recruiters would find it very difficult to make a living – and, because recruiters fees are derived as a percentage of salary, recruiters also have a vested interest in driving up salaries and in turn increasing their fees.
In answering this question we interviewed a number of recruitment firms – who, in the interest of source protection shall remain nameless – and have outlined below our take on: who does your recruiter really work for?
Churn – do recruiters revisit old placements and encourage them to move to new roles?
We wanted to understand if recruiters ever revisit their ‘little black book’ of old candidates who they have placed in businesses and encouraged them to move to a new company. We asked this question to establish if recruiters actively encourage churn or in other words poach old candidates from old clients. We spoke to several recruiters both small (individual consultants) and large (multinationals) to get the heart of this question.
We know, from our enquires, that recruiters defiantly have a ‘little black book’ of candidates and we know that they typically only receive payment once they have successfully placed a candidate. But it doesn’t necessarily follow that recruiters are phoning up great candidates, that they have placed previously, trying to get them to jump ship so they can earn their fee from whichever client they happen to be working with that day. We know from the firms we spoke to that a typical recruitment consultant has a number of businesses which they work with personally, building relationships over time. And that recruitment firms benefit from strong established relationships.
This is not to say that recruiters don’t actively try to prize good candidates away from firms in order to place them elsewhere, they absolutely do but this typically only occurs with non-clients and not with previous clients. Indeed, most recruitment contracts contain a ‘non-solicitation clause’ which legal prohibits a recruitment firm from having a conversation with placed candidates further decreasing the incentive to churn candidates.
Fees as a percentage of salary – do recruiters ever talk up an individual’s salary in order to drive up fees?
We know from data published by the Recruitment and Employment Confederation (REC) that fees from permanent placements have continued to rise despite static volumes. We know that recruiter’s revenue grew by 11% last year but with volumes stable we decided to ask how revenue has grown if volumes are stable?
From our research we have discovered that all of the recruitment firms we spoke with typically work as a mediator during salary negotiation. This may not be the case throughout the recruitment sector, but the businesses we spoke to certainly did. We were unable to ascertain whether recruitment consultants actively negotiate up a salary to achieve their fee, but looking at the maths it is clear that any marginal increase in salary is only going to result in a marginal increase in fee. From the recruitment consultants perspective getting the candidate placed is the primary priority as this will drive revenue and more than likely bonuses.
Incentivsied to work for you
Ultimately, it is clear that your recruiter is economically incentivised to work for you and that although some recruiters may encourage churn or negotiate up salaries that this is marginal. Business benefit from good working relationships that deliver value over time and don't build their business models on short one off relationships.