What to do when the ‘base + incentive’ equation doesn’t add up anymore

Julie Mills 091014-1If there wasn’t enough change already occurring in the recruitment sector, we are now witnessing a regular questioning and rethink of the remuneration models.

How companies remunerate their recruiters (base + incentive of 40% to 110%) has been the subject of much discourse at ITCRA’s recent CEO Circle meeting, in the media and no doubt during recruiters’ coffee breaks and contract reviews.

Why? According to many analysts, the current approach is simply not financially sustainable.

Recruitment companies are being challenged on several fronts: they are now feeling the squeeze on fees from clients, fighting intense competition from in-house recruitment, social media is taking its share of the market, as I alluded to in a previous blog, and clients are rewarding staff who bring in talent through ‘refer a friend’ programs.

Compounding this situation, some recruiters are heading to in-house roles where they earn 15% to 20% more in fixed pay and trading off their high bonuses for salary certainty and other workplace perks.  SEEK’s September data, also shared at ITCRA’s CEO Circle, hinted at this trend showing there had been an 11.5% increase in job ads year on year for internal recruitment positions, compared to a lesser 8.7% increase for agency recruitment roles.

So what do you do when the traditional ‘base + incentive’ equation doesn’t add up anymore?

Firstly, addressing costs. Many companies are increasing recruiters’ base salary while decreasing incentives (akin to the in-house model). This was discussed in Shortlist earlier this year – in particular the importance of communicating the reason for the change. Commentary suggests many companies have already adjusted to this remuneration approach.

Secondly, consider an alternative pricing and service model. At the CEO Circle Chris Hart proposed two service models to both meet the needs of clients and ensure the viability of the sector – the vanilla and the deluxe version (my words, not his).

The “vanilla” option is akin to the social media providers, in which contracting and recruitment companies provide an online service where clients enter data and receive a computer-generated shortlist.

This reduced human interface approach would also be offered at a lower fee. In other words, learn from the online world competitors but leverage it with high-quality candidate data, analytics, brand name and reputation for finding the right candidates.

The deluxe option is a full service, high-touch approach with a dedicated team working with the client to gain a deep understanding and responding to their human resourcing needs. In short, becoming their HR trusted adviser. This would continue to be charged at a premium.

There are, of course, many other options and hybrids of these approaches. I’ve heard and seen enough of the sector to know it is comprised of savvy and entrepreneurial operators who are right now, creating competitive options. Those who get the new reward and remuneration equation, and their service model, in alignment, will certainly reap the rewards.

And, as a suggestion, the first step is to participate in the Hart Remuneration and Benchmarking Survey to see where your model fits, against the market trends.

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