Don C.
Vice President, Head of Human Resources at E.ON - Climate & Renewables North America, LLC
"Pay for Candidate Performance" Recruitment Pricing Model
I'm interested to hear feedback and opinions from any in-house folks (HR/recruiters, finance, hiring managers and other business professionals) on whether a recruitment service offering a "pay for candidate performance" pricing model would be attractive for commissioned sales agents/reps.
I sat through a rather interesting WebEx presentation today from a company that provides such a service and charges only after hire and proven on the job performance 20% of their sales commission at or above on-target.
If the commissioned sales rep hired does not work out or is off-target, the firm receives no payment...if the sales rep is good (to great), the recruitment firm gets an override payment equal to 20% of the candidate's commission. This override is paid out through the lifetime of that candidate's employment with the company.
Clearly this model on the surface seems value-added and I have my own thoughts on this but just curious to see what a potential market reception would be for such a recruitment service. So my questions are the following:
1.) If you hire commission sales rep would such a recruitment solution model be attractive? Why/Why not?
2.) Would the lifetime commision override payment be acceptable assuming the candidate meet or exceeded the hire ROI?
3.) Would such a model be of interest if it was expanded to non-sales/non-commission related roles and overrides were paid off of annual performance bonuses?
Clarification added September 28, 2007:
Great responses so far (thanks). Just to clarify, the residual payment is 20% of the sales reps earned commission. For example, the sales reps closes $10m USD in sales which is at or above target and earns a 10% commission ($1m USD)...the firm would receive a 20% override payment which would be $200K USD). As long as that sales rep was at or above target and employed with the company, the firm would continue to receive the residual.
The rationale by this firm is that it's all upside for the company since the rep is on full commission and by guaranteeing a great hire without the upfront costs, it's no risk (in theory). Not sure I fully subscribe to this theory but it is interesting.
Look forward to your continued feedback.
Good Answers (5)
Gene L.
Technology Sourcer at EBSCO Publishing, 20,000 Direct Connections[LION], Twitter, Facebook, Empire Avenue, Klout, G+
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1)If you hire commission sales rep would such a recruitment solution model be attractive? Why/Why not?
I think it would be attractive, even within the recruiting industry many recruiters are commission based producers, so if I had to hire a staffing firm to find a recruiter for my company would I say no to a plan where I do not risk making a bad hire? Of course not.
The 20% commission on the back side would work just fine since it would be coming out of the production of the employee. However, I would not make this a true residual, I would offer it for a period of time such that the total commissions paid out on this plan would not exceed what I would pay as a fee for the candidate of say 20%.
2.) Would the lifetime commission override payment be acceptable assuming the candidate meet or exceeded the hire ROI?
As a recruiter, I would not entertain finding a good candidate and then waiting for the payment. I have seen companies get burned too often on regular terms.
3.) Would such a model be of interest if it was expanded to non-sales/non-commission related roles and overrides were paid off of annual performance bonuses?
No, such a model would not be of interest. I doubt many recruiters will put in time and effort to be paid a year later and take the risk on themselves. Many small recruiters that need the cash month to month and do not have the liquidity of a large firm would probably find this suggestion appalling.
My two cents…
Misty K.
Business Development Consultant / Favorite Client Cloner
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1) Not for the entire time the candidate remains at the company for sure. The cost is just too high - especially when 20% could eat up a lot of margin in some businesses
2) See #1
3) For executives that do get performance based bonusses, yes, but I can't see if working for lower level employees without those kinds of bonus programs.
Audrey C.
Sr. Recruiter/Account Manager at HireFinders
Best Answers in: Business Development (2), Staffing and Recruiting (1), Sales Techniques (1)
Well, I love the idea of residual income, but what if the sales person gets sick? I have heard many cases of sales people let go after big sales to avoid paying the commissions due them. A company that went for this proposal might avoid paying the recruiter as well.
audrey@hcrgroup.net
I will accept all invitations to connect.
1) I agree with the earlier answer that companies may try to avoid paying for commissions after the employee has started. There isn't a good way for the recruiter to track future commissions of the employee they placed.
2) Again, this would be difficult to track for the recruiter.
3) I think this model, in a certain form, could be very beneficial both to staffing/recruiting companies as well as the companies with whom they are partnering to find qualified candidates. Most staffing companies would not agree to a "pay later" format based on performance since they would not be able to cover expenses until much later. Additionally, if the payment is based entirely on the performance of the candidate, the company could downgrade the performance (since they are the ones who would complete the performance review) so that they would not have to pay as much.
On the other hand, if the staffing company were to base 80-90% of their fee on the placement and selection of the candidate, then the final 10-20% on the performance of the candidate, both companies could benefit. The staffing company would be able to offer a lower fee up front which is ideal for the employer. This fee setup would allow for increased business for the staffing company while keeping initial costs lower for the employer. Then, if the employee provides excellent performance, the employer is more likely to pay the remainder of the fee since it will only be a small portion of the overall cost. (From my experience, employers are more likely to attempt to get out of a $10,000+ fee than they would for the remaining 20% of a $10,000+ fee. When they only need to pay an additional $2,000, it is not worth a severing of the relationship to avoid such a fee.)
Does anyone else have additional thoughts on this?
Brandon Emkes
Business Development Representative
Kelly Scientific Resources
brandon_emkes@kellyservices.com
Greg B.
Enterprise SW Talent Acquisition Consultant | 925.487.9739
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I would say that this is an unsustainable model for the hiring company. Their sales force is responsible for 100% of company revenue, and taking some 20% off the top would be like dropping sales 20%.
Corporate Side:
An enterprise software sales rep typically brings in 2 - 3 Mil in individual sales, and a Sr Account Mgr might be responsible for 5 - 8. Taking At 5 Mil, that means the company loses 1MIL!
Agency Side:
VERY few new hires (even at the most senior level) make plan their first year because it takes 1 - 2 quarters to build the pipeline. Therefore, the probability of the Agency EVER making any money on this deal is minimal.
I have extensive experience recruiting sales professionals and I just don't see how this is a win-win, I rather see it as a lose-lose.
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Joseph W.
Quantitative Finance Research / Astrophysics
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The problem with these sorts of incentive structures is that they need to be thought through very carefully since they can lead to a lot of gamesmanship and maladaptive behavior.
don,
fixed + variable is quite a balance & sensible approach linked with performance.
pls have a re-look at economics.....the essence is that it has to be a win-win both on short term / long term perspective & ensure ownership.
cheers!
suren.
Scott S.
Corporate Recruiter at Starboard Cruise Services - Email me at scott.singer@starboardcruise.com
I would love to see the presentation!
