Could this be the end for commission?

Peter Crush

James Uffindell, Job Bounties

For decades, recruiters have focused their energies on a big fat commission cheque. But could the traditional reward structure for consultants be changing? Peter Crush investigates. 

It was Albert Einstein who reputedly defined madness as ‘continuing to do the same thing and expecting a different result’. But in the recruitment business, continuing to do the same thing when it comes to the way agents are paid – via the standard commission structure – is exactly what’s been happening for donkey’s years.

Some, such as Autodesk’s outspoken head of talent acquisition, Matthew Jeffery (in his entertaining Recruitment 3.0, 4.0 and 5.0 trilogy of academic papers), are now increasingly critical of this. Jeffery writes: “The business model of traditional retained search and selection companies, is founded on the delusions of lunacy. A client pays a 30% fee — but the risk all loaded on the fee-paying client. Things have to change.” But while anger at the current way of things might make a few headlines, are there any serious steps being taken that will demonstrably change the way recruitment consultants fill roles?

“The industry has always been about commission-based incentivisation,” asserts former consultant Richard Prime. “I’m not sure this is likely to change any time.”

Prime, who is now joint CEO of Sonovate (which helps fee-motivated consultants set up their own recruitment agencies) could arguably be seen as helping perpetuate the desire for monetary return. “Why take home 20% at a large firm when you can take home up to 95% of your earnings when you start your own business?,” he says. Indeed, he argues firms like his are actually reacting to the recent (but unsuccessful, in his view) trend for agencies to raise base salaries, and cut commissions, sometimes to 10-12%.

Recruiters need hunger

“The industry thought it could attract better people, more committed to long-term relationships, by raising people’s basics, and reducing commission to 15-20%,” he says. “But this actually disincentivised people. Many saw this tweaking around the edges as losing sight of the people that were working really hard. The recruitment industry still wants and needs hungry recruiters.”                  

Others however, believe they are seeing a gradual trend to other forms of reward to filter through. James Smith, associate director, accountancy and finance (temp and contract division) at Morgan McKinley says: “Yes, cash is still king, but since Q4 of last year, we’ve been incorporating our values more – such as how people build trust, and how they represent the company – into our incentive programmes. We’ll still take our best performers to New York, but now we look at testimonials from clients and other soft factors to gauge or rate performance.”

Smith says the emphasis moving forward is to recognise, reward and measure “the right behaviours” – those which focus on more long-term partnerships with candidates and clients – rather than quick wins.

Although a traditional commission structure remains, Morgan McKinley supports communication of these values by offering alternative career paths to those who want to focus on client service, and it is extending paying commission to reward those who work in the hard-working support teams that deal with contractors. It even encourages consultants to write blogs, with a new site launching to do this next month. This is to encourage them to act as thought leaders, and to share their industry knowledge. While blog posts won’t be paid for, contribution to the site will determine the score they get for representing the business (which in turn determines bonuses).

New forms of reward

According to Adrian Kinnersley, founder of Twenty Recruitment, this sort of thinking should be far more common. Agencies, he argues, have far more scope to tap into new forms of incentive that they may not realise.

“Less than 5% of the recruitment agency sector employs more than 50 people,” he says. “We’re dominated by small businesses that should be able to be more imaginative. We have a great office environment, funky furniture and good training. We emphasise these things as what makes us a good place to work.” He adds: “Once staff have been here for a year everyone in our business is also given shares. Share options build the more people contribute; I feel long-term incentives genuinely change people’s behaviours. It’s less about fast bucks. It creates a much better working dynamic.”

Employee ownership may not be typical yet, but new industry players believe the industry has to at least respond to the new breed of so-called disruptive firms that all aim to redefine the market and who all claim to beat agencies’ current commission-based strategies. New-to-the-UK firm Hiring Hub, for example, takes its US model to UK market. It enables employers to post a hiring project up online, at a billings rate it chooses. It then invites agencies to ‘pitch-for’ the business. “Employers are coming in offering just 15%,” says Danielle Whitehead, the firm’s social media executive. “But they’re finding they get better candidates from agencies they may not have met. It shows 20-30% commission doesn’t have to be the norm.”

Joining Hiring Hub are firms such as Job Bounties – an online service founded by entrepreneur James Uffindell – which lets employers decide on a ‘bounty’ they’ll pay for ordinary people to refer someone they know. “It all started out of talks I had with agencies when I was a SME owner wanting to hire my own manager in 2009,” he confesses. “I wanted a £20,000 pa person, but was being charged £5,000 for it. It was too expensive. I thought there must be a way of using everyone’s own personal networks, and paying them to find (often better) people.”

Although agencies can get involved with Job Bounties (suggesting their own network of people), Uffindell believes services like his enable hiring companies to become more fluid about who they use to recruit. “Everyone has a black book/friends they know,” he says. “Employers can offer £1,000 bounties for a £20-30,000 role and it’s working for them.”

Offer something different

His inference is that agencies need to respond and offer something different – both the clients and the people working for them.

Some are. Naked Recruitment claims it has ‘nothing to hide’ and is promising to ‘earn its keep’ with a no commission recruitment service at a flat rate of £999 per person. But Howard Flint, CEO of Omni RMS, which operates as an outsourced recruitment function, argues more agencies will ultimately have to pay how he does – by incentivising for service.

“Although we’re slightly different – in that we’re not selling in candidates – there’s no reason why more agencies can’t operate like us,” he says. “We reward our staff against KPIs, like how many candidates we supply firms that turn into eventual employees.” Omni also has breakaway rooms, chill-out areas, remote working, flexible hours and in-house facilities that mimic a home environment.

He adds: “Agencies are notoriously hot-house environments, and with commission ruling at it is, their responsibility to the recruitment process can be quite low. We’re paid based on how the recruit performs. Our view is very much that recruitment has to be measurable and has to be compared to service levels.”

Perhaps some of these elements sound ‘mad’ to agencies chasing commission based on volume. But carrying on the same old way? Einstein would not approve…