Sizing Up Recruiter Commission Plans
The complexity of recruiter commission plans tends to rival both ontological arguments and mortgage refinancing documents. Recruiting commission plans even work their way into corporate talent acquisition, as there are often performance based bonuses and required metrics. Compounding the difficulty of compensating recruiters is that there is no agreed upon vernacular. Every recruiting agency, staffing firm, corporation, and independent headhunting firm seems to have their own terminology. What is a recruiter supposed to do?
Most recruiter commission plans combine a series of factors. The terminology includes:
- Total Revenue
- Gross Margin
- Number of Placements
- Percentage margin
- Recruiting activity metrics
- Percentage of placement with client
- Average profit per week
We could easily list a hundred different factors that go into most recruiting compensation agreements. Adding to the confusion is that most plans also have different tiers or “buckets” which accelerate commission percentages and payouts. Additionally, many firms offer multiple services, each with its own commission – like staffing temps versus making direct hire placements, or hourly workers versus fixed bid consulting engagements. If you have interviewed with a number of different recruitment firms, you know how difficult it is to determine what you will actually make on a certain level of performance.
Commission plans for recruiters are usually complicated on purpose. However, know that most firms size up their competitors and adjust their commission plans according to the market. In general, most commission plans are quite comparable and the variance is a matter of a few percentage points. Opportunity, company culture, and benefits usually outweigh the concerns over a slight difference in commission dollars. But it still matters a lot – and especially if you have a demonstrated track record of performance, you can and should shop around and get the best plan that you can.
A few tips for sizing up recruiter commission plans:
- Ask about averages: Instead of asking about goals and metrics, determine the reality of the current recruiters’ compensation. Ask the average office and/or regional total compensation. Ask what the top performers make as well.
- Use what-if scenarios: If you’ve been a recruiter before, you know what is realistic and the history of your performance. Go through the exercise of modeling very specific scenarios with the hiring manager (For example, what would happen if I made 5 placements a month, 2 of which were direct hire placements?)
- Determine total revenue percentage: Different recruiting and staffing firms model their plans on very different financial metrics like gross margin, profit, net profit, etc… Different firms also assign varying definitions to these terms – which aren’t always standard accounting terms. It is a good practice to determine the percentage that you make of total sales/revenue. This will give you an idea of their overall business model and how they compensate their recruiters.
- Get a list of definitions: As stated, every firm uses different language. Profit to one firm means company profit, while to others it means the individual deal profit, and to others it’s the profit of the deal with your own recruitment operational costs taken out. Make sure you understand the vernacular. Understand the key metrics by which your commission plan is based and make sure you’re talking in the same language.
- Get the big picture: Commission plans speak to you! They are designed by companies to “promote” a certain aspect of performance in order to meet company goals. For instance, if the firm is highly profitable, but they wish to capture greater market share, they will often emphasize new business in their commission plan. Another recruitment firm might wish to raise their profit margin for their investors – their commission plan might bonus based on the percentage of profit of each deal. It’s very important to understand what the commission plan is telling you. Then ask yourself if the plan aligns with your interests – if you work well with a small set of clients but hate developing new business – don’t take the plan which only rewards new client development!
Recruiter commission plans are of course not the primary component to a successful career or to employee satisfaction. However, compensation of recruiters is often overly complex – it’s difficult to determine what you might make until you are actually working in the company. Especially if you are an experienced recruiter, it’s important to really understand not only the potential compensation, but also the underlying directionality that the commission plan promotes. In the normal course of interviewing, commission plans are an easy item to gloss over – remember to really analyze and dissect the plan before accepting a new recruiting job.