Is Your Recruitment Strategy Built on Risk or Reward?
Risk and Reward in Recruitment
What Type of Approach is Right for You?
Contingency vs Hourly (and everything in Between)
A Good Heart These Days is Hard to Find – Feargal Sharkey – 1985
Aside from having one of the best names in Pop music (and likely being the answer to a trivia question where you know the song and not the artist), Feargal Sharkey of the Undertones has a lyric that can be directly applied to the world of hiring… “A good heart these days is hard to find.” You’re right Feargal; you’re so right!
Recruitment, hiring, people development, talent optimization, employee engagement, retention, growth strategy. There is a saying in the entertainment industry that says, “never work with children or animals.” These are two seemingly unconnected thoughts but where with us, there is a link, and that link is unpredictability. This is an essential element to recognize. Unpredictability is what make the hiring and people process so challenging, and potentially risky. Organizations are looking for the best people for their roles but how do you define best, and what are the risks and rewards involved; the stakes are high!
The process looks like this. Organization “A” establishes a need; they have created a new role that needs a person to fill it (or they are back filling a role). The role is posted online and/or a recruitment team is engaged. People are found, people apply. Interviews take place. Someone is hired (eventually). The candidate is onboarded and they either see success and are promoted out of the role, or they (for whatever reason), vacate the role. Then the cycle continues. Simple, right?
The hires you make have an ENORMOUS impact on your organization. That impact looks like culture formation, scalable growth, ability to manage, how your Partners/clients experience your team, how your people interact with one another; at a macro level, if your company sinks or swims.
A mis-hire can cost your organization up to 30-40% of that person’s first year salary, and that’s just the fiscal cost (it doesn’t include the emotional, morale, culture and production aspects impacted by the failed hire)
There are other elements that contribute to this process too, which include: how quickly do you need the hire? What’s most important to you, speed, cost, or quality?
The stakes are high, so what options do you have, and what is right for your organization (and why do we believe in what we do so strongly)?
Great question, we’re glad you asked.
Putting the Right People in the Right Seats.
We have a saying at Titus (admittedly that we appropriated from Lou Adler, and tweaked), “Right Seats, Right People.” This term is foundational to the “what, how and why” of our process. We believe in it so much our CEO authored a book on it, which you can find here.
In principle the idea is this: If you can first define the seat (job role) and what performance looks like in that seat, then you can look for someone who is going to be the best fit for that seat. That fit encompasses the “Whole Person,” “Head-Heart-Briefcase” approach. The right fit for a role looks beyond experience and ability and explores values, motivations, and metrics around achievement. Your company has a culture and personality and finding the right fit needs to include that element, not just for your team but for the candidate too.
So, what!? How does this impact my team?
Sounds good, but we can hear you asking, what does that have to do with my options when it comes to hiring? Why tell me about this, especially in a volatile hiring market where things are either running at a million miles an hour and we’re facing competition for candidates or when we’ve put a hiring freeze in place to see what happens.
Again, great questions. Firstly, if you are in a hiring freeze, we can guarantee it won’t last forever and you may find yourself in the position we first mentioned, competition for candidates.
If you’ve heard a little bit of our origin story, you’ll know that we were born amid adversity, 2011 as the market was course correcting from recession. You can read/watch that story here if you want to know more…
In short, we were seeing what was happening at Milwaukee Tool. The industry was flooded with candidates and hiring was slow. You’re likely familiar with the quantity vs quality argument. Well, the market at quantity. Milwaukee Tool was inundated with resumes and applicants that were distracting from the A-Players. Contingent recruiters were muddying the waters and adding to the noise. Inspired by Lou Adler we thought we can impact this in a positive way with a partner led model, which we have honed over the years and put our own spin on. The recruiting industry has been around for 100s of years without much change, and we wanted to challenge that.
Again, we can hear you saying, “cool story, but how does this affect my strategy; what’s best for my team?”
OK, so what are my options, can you get to the point?
There are three, perhaps four options that companies can use to hire people:
- Contingent recruiting
- Retainer recruiting
- Partner led recruiting
- Solely in-house
So, what is Contingent Recruiting, what are the risks and rewards involved (and why does it have such a shady reputation).
The contingent model is based off the idea that the recruitment firm is paid when the role is filled, and the candidate has satisfied an agreed amount of time in the role (typically 90 days).
The firm’s payment is contingent on them filling the role for you.
- Pay when placed
- Low engagement on the hiring process – the contingent firm finds the people, but the client does the heavy lifting of interviews, role alignment and onboarding
- Considerable risk on the success of the placed candidate
- Access to a wide pool of candidates (quantity doesn’t always mean quality)
- Typical 90-day guarantee – you pay even if the candidate leaves after a brief time in the role
- Contingent recruiters are often building better relationships with candidates and may poach them for other opportunities. It is not unheard of for a contingent recruiter to place the same candidate in three different roles over the span of two years…
- Limited to no exclusivity: the contingent recruiter wants to fill roles and may share a single candidate with multiple companies.
- Contingent candidates coach candidates. You may be speaking with a candidate who has been told what to say to impress you (imagine how that looks after 6 months when stories don’t line up).
- More lucrative searches are prioritized in favor of difficult/lengthy searches. This means that your search may become less of a priority.
- The cost per hire is, on average, 25% of the salary (and the slightly shady contingent recruiter may influence the urgency to drive salary up).
- The cost of a failed hire in the contingent world could include: the recruiter fee of 25% plus the 30-40% internal cost and then a possible fee of another 25% for a new hire… on a $100k role that could look like as much as $90k by the time you are on your second hire for the role…
- When it works it’s great, when it doesn’t it’s disastrous, and there are a lot of times it does work (people still use it after all, it’s just risky).
- There are contingent firms that are industry specific and therefore have experience with highly technical roles, but their costs can be exponentially higher.
What is the Retainer model?
The retainer model employs an agency for a set amount of time and takes payment in stages. It is often a step up in engagement from a consultancy-client perspective. There is more skin in the game from both sides however similar risks apply to the contingency model, especially in the how/if candidates are benchmarked for success.
- Pay in installments: one third to start the search, one third on completion of candidate shortlist and the final third on completion of the search.
- High cost – retention searches are often more expensive than contingent searched as there is risk on both sides.
- Higher risk but potentially higher quality of candidate.
- Challenging if search goes long.
- Higher commitment and exclusivity
- Pay structure based off first year salary, just like a contingency model
- Candidate not guaranteed or only guaranteed for 90 days
- No follow up once completed
What is Partner Led Hourly Model Recruiting (and why are we not so secretly biased toward it)?
- Hourly fee – controllable budgets. The Partner model dedicates time to your search. There is no letting off the gas or moving on when a search gets tough. It’s 100% trackable commitment.
- Exclusivity: you know the candidates you are speaking to are not being shared with other organizations. If the candidate is interviewing at other places this model will uncover that (along with where your organization stands in terms of candidate interest) and enable you to adjust in an informed (not urgent) way.
- Candidates guaranteed for a year (under certain options). We believe a candidate can only be judged on day 365 and judged against defined performance objectives. That’s why we offer a Performance Guarantee option that gives you peace of mind and ensures we have skin in the game to provide an exceptional candidate of true, measurable quality.
- Potentially slower ramp up time as each search begins by looking for fresh candidates. Once the search gets going it snowballs and gathers traction. If you want a quality hire (not just a filled role) in two weeks this might not be the approach for you (we have achieved this, but it isn’t the norm).
- True partner experience. There are weekly update meetings that take place as well as real time information shared with the team. The stronger the partnership the better the search.
- Ability to make multiple hires from one search. We give you the data and if you want to use that to go after the candidates yourselves then you are free to do so. We had one Partner who hired 10+ candidates from one search which gave them the equivalent ROI of 4% per hire… For example, hiring ten of those candidates at a $50k salary could have cost the organization $125,000 in a contingent model. The Partner led approach was a fraction of that…
- Ramp down/up as needed; there is a lot of flexibility in this approach. There is an impact in adjusting budgets on how much time is spent on the search but if you are engaged in a lengthy search there are things that can be don’t to address the tension of speed and cost.
- Work with the same people/team. Our people build relationships with the consultants. No one knows your company or your team like you do, but by building significant relationships the Partner led model can lead to feedback that includes: “I thought I was speaking directly with a member of your internal team. Person X did such an excellent job communicating the heart of your organization and role that I had no idea I was speaking to an outside consultant.”
- Focus on right person in right seats
- Sitting on your side of the table. A partner led approach helps us see what’s profoundly important to our partners. There is power in the elements that, at first glance, might seem insignificant. Often, it’s those small elements that make an enormous difference in attracting and landing the right hire.
- Searches can take 4-12 weeks. We recognize that Partner is choosing to trust us and are stewarding their resources. We have a duty of care where we treat our Partners fees accordingly.
- The Partner led approach can incorporate contingent and retainer approaches but with the added bonus of regular touch points and consistent communication.
Each of these approaches has its pros and cons (even though we think our model is the most conducive to quality and experience for both the Partner and the candidate).
Making a hire is challenging enough but making the right hire demands a strategy that supports the quality of candidate you are looking for. Only one of these models can incorporate all the options.
If you want to see it in action, then book a free demo with us here and let’s connect.
More than recruiters, Titus Talent Strategies are a team of Talent Optimizers who genuinely care about the work we do. We empower companies to put the right people in the right seats through informed, connected strategies that combine data with an empathetic understanding of what makes people tick. We recognize that our partners are investing in us and that results mean more than just people placed in a role. It’s about impact and connection.
Want to start a journey towards building a high performing culture? We can give you a roadmap. It takes less than 10 minutes.