Fee Negotiation Part 1 – Flat Fee Request

Friday, February 8th, 2008 by admin.

By Prestige Group, Ltd.

This is part one of a series of articles on fee negotiations.  

There has been over the past few years, a trend for clients to request a flat fee agreement.  These flat fee requests have stayed at the same amount year after year. Plus, the majority of the flat fee requests are for substantially lower amounts than a percentage.  Here are some of the issues with a flat fee.  First, if you haven’t read the article “Why Recruiters Are Worth What They Charge”, a reprint from the Fordyce Letter by Paul Hawkinson in this blog site this month, read it. It will give you a foundation. 

Secondly, and more descriptive, is the following. 

Let’s say you have negotiated from a percent fee to a flat fee of $12,000.  Your legal department or boss won’t work with any recruiting firm unless they agree to this flat fee. Your company/ facility has been using this flat fee for a couple of years now.  I propose the following questions. Has your company/ facility, over the past two years, charged the same for their services?  Are all the employees at the same salary as two years ago?  Has the electric and water bill stayed the same for the past two years?  Have your insurance costs stayed the same?  I venture to guess every one of the items stated above have increased along with countless others that haven’t been mentioned.  We all know a dollar two years ago is worth less now. The fact is, it costs more now to do business then it did two years ago.  The flat $12,000 fee two years ago is now actually worth $739.91 less than two years ago*.  Basically that’s losing 3% of your money every year.

This article isn’t trying to be combative, just leading you to this fact. It doesn’t make since for any company to “freeze” their main source or only source of revenue as other costs increase every year.  A company cannot survive.  Tell your employee’s that for the next two to three years they won’t get any raises.  What type of work do you think you’ll get from your employees.…if they stay?  A percent fee agreement allows for inflation. 

Put yourself in a recruiting firm shoes for a moment.  You have a company that has a position to recruit on that pays $90,000 but has a flat $12,000 fee agreement.  You have another company that has the same position for the same money but is on a 25% fee agreement.  Which one would you put your efforts into?  You’ll put the most effort and present the best candidates’ on the position that will pay you $22,500; notice I included best candidates’ also.  You would want the best chance for a placement with the company that will pay you more, wouldn’t you?  Therefore they would see the best candidates. 

When recruiting firms go over their recruiting priorities, what companies get the best recruiters working on their openings?  What companies will actually have someone working on their situations every day?  I can assure you it isn’t the flat fee.  

Most recruiting firms that accept a flat fee agreement do so because they have someone in the area that they already have and they can spend little time on it.  They might even feel, since they’re working in an area for another company on a percent fee agreement, that if they happen to locate a candidate looking for a position, but isn’t a great candidate and wouldn’t send them to the percent company, you’d get it.  The flat fee company is getting the “B-” and “C” candidates or the “hand-me-down” candidates. This isn’t the type of candidate anyone wants.

All this to reinforce the old phrase “You get what you pay for”.    

Percentage fee agreements are the best way to go because they self adjust for inflation; they don’t have to be renegotiated because they self adjust.  You have confidence that the open position is a priority to the recruiting firm and they’re working on it.  Lastly, the candidates that are presented are good candidates and not after thoughts. 

*  U.S Department of Labor, Bureau of Labor Statistics web site – Inflation Calculator  Comparing 2005 vs. 2007  

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How Some Recruiters “Phish”

Wednesday, February 6th, 2008 by admin.

By Prestige Goup, Ltd. 

Within recent years, the job posting and resume posting sites have become more prevalent.  With this increased exposure, there comes increased abuse.  There also comes an increase in “unqualified candidates” and “lookers” (but that’s another article).  The increased abuse we’re discussing in this article comes from recruiters that are not doing their job.  They are lazy individuals that give recruiters a bad name.

First, what they will do is search one of these sites resume section and locate a resume that looks good and then will send it to “potential” clients like yourself.  They also set their account at the site so they receive an email alert whenever a new resume is posted.  Again, then send it to you.  Now, they haven’t spoken to the candidate, nor does the candidate even know the recruiter has sent their information.  They are “phishing” for a job opening. If you tell them you aren’t using recruiters at this time, they might state something like “If you hire this candidate you owe us a fee.” Sound familiar?Secondly, never say to a recruiter “Send me a resume and then we’ll talk contract.” or “If you have someone interested….”  You just opened yourself up to the above scenario.  You know it happens and it probably has happened to you at one time. So what do you do.  First, if you haven’t agreed on a contract and they send you someone like in the above scenario, congratulations you just got a free lead.  Sounds simple but a lot of companies or facilities fold and offer a half fee or something.  Never open the door for the abuse and it probably won’t happen.

Secondly, if your going to use a recruiter then write the contract; otherwise don’t.   What I mean is, don’t “dangle” a carrot in front of them by saying “If you have a candidate….” because they will present someone to you.  Now this person probably doesn’t exsist.  What you have done is opened the door.  The recruiter will either make up someone or use the resume from the mega resume posting site and send it to you.  Then you get the call back that “The candidate isn’t interested any more” or “It’s a little too far for them…”. Yeah right !! They never had anyone in the first place.  Again,  NEVER say to a recruiter “Send me a resume and then we’ll talk contract.” or “If you have someone interested….”  Just write a contract if you’re willing to see candidates from a recruiter.

We just want our clients and potential clients to protect themselves with information.  There are other ways to protect yourself.  Please contact us to discuss what they are. 

By the way, Prestige Group, Ltd. doesn’t have an account with any job posting/ resume posting site.  We actually talk to people.

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Why Recruiters Are Worth What They Charge

Wednesday, February 6th, 2008 by admin.

from the The Fordyce Letter archives

 By Paul Hawkinson, November 1st 2005

“When I need a heart by-pass, rest assured that I won’t select my surgeon on the basis of what he charges.”

That’s what an ailing executive recently opined when he was informed by his doctor about his arterial blockage problems.

Why then are corporate executives so tightfisted when dealing with what is so commonly thought of as the “heartbeat” of their companies . . . top-talent?

Companies think very little about paying the often excessive fees charged by their outside accounting and legal firms . . . or even to the gaggle of consultants who promise cost-cutting and streamlining miracles in other areas of operations.

Yet, when faced with brain drains, talent deficiencies or the need to replace one employee with a better one, their thoughts too often turn to parsimony. This K-mart mentality belies and contradicts their stated objectives to “hire the best,” especially at pecking order levels below the “big picture” executive suite inhabitants.

Of course recruiting fees can vary from firm to firm but, when they do, you will almost always find that those on the low side are sure to exclude some very key ingredients of the process, all of which are vital to providing the indispensable services necessary to satisfy the needs of the employer.

So why are recruiters worth what they charge? Just a few of the often unspoken reasons are:

Expertise - Nobody knows the employment marketplace better than a professional recruiter . . . nobody! In-house human resourcers, no matter how effective, view the marketplace through an imperfect or misrepresentative prism and tunnel vision is their occupational hazard.

Just as physicians are cautioned against treating members of their own families, so too is it folly for an in-house H/R professional to believe that they have an undistorted and unbiased picture of the employment landscape. They are vulnerable to the pressures of internal politics and cultural dimensions which do not hinder the outsider.

Street-smart recruiters already know the neighborhood, including the unlisted addresses so often overlooked by the insiders.

Cast a wider net - A professional fisherman will always have more to show than a weekend angler. Recruiters are in the marketplace day in and day out. They know the unfished coves, reefs and inlets that are unknown to others. The job-hunter bookshelves are filled with lore about the “hidden job market.” The same holds true for professional recruiters who have a detailed roadmap to the hidden talent sources which will never be accessed by newspaper ads, alumni associations, applicant databases, job boards or any of the other more familiar sources of people.

There are occasional pearls through these sources (and someone inevitably wins the Publisher’s Clearinghouse Sweepstakes too) but you have to shuck an awful lot of smelly oysters to find them. Recruiters only give you oysters proven to contain pearls. Your only job is to determine which pearl is the best.

Want to catch what you’re fishing for? Hire a guide!

Cost - There is a misconception among employers that the cost of a hire equals the cost of the ads or Internet postings run to attract the person hired. Nothing could be further from reality.

Try adding these to the true cost and you’ll see just how cost effective an outside recruiter can be:

Salaries and benefits of the employment/recruiting staffs plus those of the line managers involved in the hiring activity (who are not productive in their normal job pursuits when they’re out recruiting); travel, lodging and entertainment expenses of in-house recruiters; source development costs; overhead expenses including but not limited to telephone, office space, postage, PR literature, applicant database maintenance, reference checking, clerical costs to correspond with the hundreds of unqualified respondents, etc.

Unbiased third party input - Contrary to what some believe, recruiters don’t try to put square pegs into round holes. A recruiter’s stock-in-trade is their integrity and their reputation for finding someone better than a company could have found for themselves.

For a mid to senior-level executive, the average recruiter may develop a “long list” of a hundred or more possibilities. Each must be called and evaluated against the position specifications as well as the personality “fit” with the company and the people with whom they will ultimately work. Once this is winnowed down to the “short list,” an even more intensive interviewing process begins to narrow the search to a panel of finalists for review by the client.

This process is not, as some believe, simply romping through the file cabinets, harvesting from the Monster lookalikes or putting the job opening out to others on the recruiter’s network with crossed fingers that someone good will show up.

It is highly unlikely that a professional recruiter will be plowing new ground with your opening. They deal within spheres of influence far more familiar with your needs than any internal recruiter and, more often than not, view the finalists as people who are competent to solve client problems rather than just fill an open slot in the organizational chart.

Because they want to do business with you again and again, they are looking for (and challenging you to excellence by hiring) the “truly exceptional” rather than the “just satisfactory” so often settled for by in-house hirers.

Confidentiality - Advertising or otherwise publicly proclaiming an opening, aside from its cost and demonstrated ineffectiveness for sensitive senior level openings, often creates anxiety and apprehension among the advertiser’s current employees who wonder why they aren’t being considered or worry about newcomer transition problems. Just as often it alerts competitors to a current weakness or void within the company.

Speed - The recruiting process is always faster through a search professional who is continually tapped into the talent marketplace than one having to start the process from scratch. For every day that a key opening remains unfilled, a company’s other employees must grudgingly do double duty. And this doesn’t factor in the profit opportunities or competitive advantages lost to a company because a position remains unfilled or is done on a part-time basis by others less qualified.

Post-Hire Downtime - Not only is speed an essential part of the professional recruiter’s process, the ability to locate a person who can immediately “hit the ground running” with a minimum of “ramp-up time” saves time after the hire. All too often, a hire selected through less effective sources offering a smaller talent pool requires several months of expensive training and orientation.

Reality - Professional recruiters often recognize and have a duty to inform clients that they may be mistaken as to the type of person sought, the salary required to attract them or the possibilities that the solution might just lie in areas outside the traditional target industries . . . something an internal recruiter is politically disinclined to do. Too many hirers fail to understand that a professional recruiter’s primary function is not necessary to fill a slot but to provide the right candidate to solve a problem.

Negotiation - Master negotiator Herb Cohen says that, “negotiation is the analysis of information, time and power to affect behavior . . . the meeting of needs (yours and others’) to make things happen the way you want them to.” As a buffer and informed intermediary, the professional recruiter is better able to blend the needs and wants of both parties to arrive at a mutually beneficial arrangement without the polarizing roadblocks which too frequently materialize in face-to-face dealings.

Prioritizing company resources - It is often amazing to see how much of a company’s revenues are squandered on non-productive perks for existing high-level employees while they penny-pinch on what is every company’s lifeblood . . . talent acquisition.

Club memberships and the like may be fine, but no one with an IQ higher than Forrest Gump’s believes that these expenditures substantially contribute to a company’s profit margin. But one well-placed employee can be the cause of a company’s profits skyrocketing. And the fee for having hired these people pales to insignificance when compared to the contributions they make to the bottom line.

The next time you think a recruiter’s fees are too high, put them in the proper perspective before asking for that Blue Light special or spinning your wheels thrashing about trying to fill vital openings with less effective (but not necessarily less expensive) pedestrian methods. Savvy executives learned long ago that the fee paid to a recruiter is a shrewd strategic investment, not an extraneous expense. They also know that the “best” is far different from the “best available.”

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