Contingency recruitment: the real ‘mad men’?

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I’ve recently been following a thread on LinkedIn. It questions whether it is fair for recruitment agencies to be asked to give 100% rebates when candidates don’t work out. The argument broadly being that the client has had a big part in selection, so why should the agency take the full hit when it doesn’t work out?

Its been a fascinating debate to follow. However, I think it misses the target. The real elephant in the room is ‘why on earth would anyone do a pile of work without the promise of being paid for it?’ I am, of course, referring to contingency recruitment.

I am struggling to think of any other industry that says: ‘only pay us if you like the result’. For example, I’ve never been in a restaurant where the waiter arrives at the end of the meal and says; ‘if you didn’t enjoy it, I’ll tear up the bill’. In the same way my accountant doesn’t waive his fees if I don’t like the amount of tax I have to pay after he’s done my annual return.

Ah but, I hear you say, some lawyers take on ‘no win, no fee’ cases. That’s true. But I bet many only take on ‘dead cert’ wins. And if they win they are now allowed to charge higher than normal ‘success fees’. To balance out the cases they lose. If the same were applied to recruitment, contingency fees would be the highest in the industry. More than retained search fees. The size of the fee reflecting the risk of getting nothing. Instead contingency fees are often the lowest in the market…

So let’s be really honest. If a new professional services industry started out today would it adopt the no win, no fee model? I seriously doubt it.

The fact the recruitment industry does use it is, in my view, part of the reason it gets so much bad press. For starters, do people really value things they get for free? If your time has no value it is, by definition, worthless. Giving loads of it away doesn’t enhance your reputation in the long term. Probably a key ingredient in why so many HR people talk negatively about the agency world. And wouldn’t want to work in it.

In nearly forty years in the HR world I’ve met perhaps a handful of perhaps two dozen people who want to move from in-house HR to a recruitment agency. I’ve met hundreds, if not thousands, who want to go the other way.

Secondly it makes over-trading endemic. Most agencies work on the assumption they’ll convert perhaps one in three, four or five of the contingency roles they work on. That means anything between 66 and 80% of all the work they do goes unrewarded. So, all the focus goes on having lots of jobs on (ie sales) and that detracts significantly from delivering a brilliant service to clients and candidates (ie quality).

Just imagine how the candidate experience would change if recruiters were spending all the time wasted on jobs they will never fill on delivering a quality service on the ones they will. It’s the classic Bilbo Baggins ‘too little butter spread over too much bread’ scenario.

So why does the industry persist with the contingency model? The answer is simple. All the time there are people mad enough to offer work for free it inhibits other people’s chance of charging for the same activities. Get enough ‘mad people’ giving expertise away for free and you create a critical mass where it becomes almost impossible to charge anything.

And once you drag things down to that lowest level it becomes almost impossible to climb back out of the hole.

Here’s another way of thinking about it. Estimates vary but the general conclusion is that the UK recruitment industry employs around 100,000 people. If those people are wasting 66 to 80% of their time on jobs they never fill it means the industry is employing 66-80,000 people more than it actually needs to fill the volume of vacancies being recruited. Over-simplistic I know (not least because not all will be doing contingency work) but bear with me.

Estimates of average recruiter salaries (excluding commission) also vary dramatically. Let’s just work on a nice round number – £30K. If there are 66-88,000 more people in recruitment agencies than there need to be that’s an ‘excess’ pay bill of £1.98 billion pounds of salaries. And who foots that bill? Ultimately employers via fees that are far higher than they need to be because you are subsidising the huge inefficiency that is multi-agency, contingency only recruitment.

Now I may be a heretic (I can hear some agency owners baying for my blood), but all this madness could be stopped if we moved to a different model. One where:-

• Employers are only allowed to brief a single agency on any job
• Employers have to pay the agency to work on that job – ie retain them
• Only perhaps a third of the total fee is success based – which also protects agencies briefed to go on a “unicorn hunt”.

Ah, I hear the ‘mad men’ shouting, so agencies get away with being rubbish and still get paid. Well, of course not. Any agency that isn’t consistently good wouldn’t attract work and would lose clients fast. And that’s the key: consistent. My model would force agencies to hire people who are great at delivery. Not sales people who stack the jobs high and play the percentage game. You’d only last by being outstandingly good.

My challenge to the likes of CIPD, REC and APSCO: it is time for a genuine debate about the future of the industry. Assuming of course we want recruiters to stop being the butt of so many jokes about quality.

‘Contingency recruitment: the real ‘mad men’?…’ was written by Ian Gooden, CEO Chiumento Ltd. If you like what you’ve read why not follow us on LinkedIn and Twitter and read all our future careers advice and musings on the world of work.

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