Best and worst recruiter commission schemes

The way recruiters are paid has been a fraught topic forever.

Plenty of owners struggle with recruiter productivity.

Bonus and commission schemes have been lauded for motivating teams and criticised for driving lousy behaviour.

For 41 years, I have been debating and testing and struggling with getting compensation and commissions and bonuses right in the businesses I have run, and the many I advise now

Firstly, it’s hard. There are so many moving parts. So much to consider. It’s not one dimensional

Secondly, I have tried every scheme under the sun, and nothing is perfect. Every scheme had downsides.

But there are some great truths and some practical learnings.

So, I prepared a 25-minute video downloading the summary of what I know and believe. It is going up on the Savage Recruitment Academy, so available to subscribers only

So, I did a short version of the video. For everyone. In it, I highlight 11 critical points regarding commission and bonus plans. For the complete explanation, sign up to the Savage Recruitment Academy.

1. Align the reward scheme with your ethos. Your fundamental ethos and culture, not your PR blurb. The type of company you want to create. Yes, a profitable company, I know, but what else?  You want a collaborative environment; your comp scheme must reflect that. You are happy for the winner takes all, survival of the fittest vibe, then structure accordingly.

2. Reward people for what you want them to do. Sounds obvious. LOL. How many billing managers are asked to coach, develop, and lead a team of 4/5 recruiters but rewarded 90% on their own billings? Total conflict. It will never work. How many businesses reward the recruiter on the job filled? And then expect recruiters to miraculously share candidates with each other. Good luck.

3. Get your Base salary right. Don’t respond to recruiter shortages by rapidly escalating your bases.  Bases must be fair and attractive. I call them ‘Goldilocks Bases’. Not too little, and not too much. Too little means you will get no interest. Too much, and you will soon be caught on the uncomfortable crossroads of high fixed costs and mediocre productivity. Trust me, that is a painful place to sit.

4. Avoid ludicrous ‘buy-in’ premiums for so-called superstars. ‘Superstars’ who routinely underdeliver and where you mess up the fairness and equilibrium of your reward system, leading to unrest and distrust and much more.

5. Over-rewarding mediocre performance. Disaster. This is where the commission kicks in too soon. Thresholds are too low. At first, it might be small money, but it breeds a ‘See monkey-feed monkey’ mentality and ethos. It can get to the point where a recruiter won’t pass the stapler to a colleague without asking for a fee split! Commissions are bonuses. Bonuses are a reward for results above expectation. Not for turning up. What exactly is the base for, after all? That’s for doing a good job, like any job. Do you want tasty bonuses? You over-deliver!

6. No understanding of ‘Cost of Seat’. Or ignoring it. This is linked to the previous point. Don’t ever devise a comms structure without calculating COS. Total costs, deduct fee-earners salaries. Leave managers and admin in. Divide by the number of fee-earners. (Much more detail on this in the full video on the SRA)  It will be AUD 100,000 or £50,000. Then add the base to the Cost of Seat, and only above that number are you just starting to get a return. Devise bonus strategy accordingly.

7. Not rewarding high-performance. Also, very dangerous. Once a recruiter has billed three times base, you can be generous. Salary and COS are paid, and so is an essential return to the business. Don’t scrimp with your good performers. Show them the money! Once they have billed four times and above, what does it matter if they get 40% or 50% of fees produced? You have made a fortune on them. Drive high performance by ensuring high performance is very lucrative.

8) Commission structure too complicated.  I have seen some that need a degree in calculus and a PhD in English Lit to comprehend. Too many levels of bonus percentage. Too many ‘ifs and buts’. It builds distrust in the system and stunts effort. Make it clear, simple, and easy to understand and calculate.

9) Paying monthly, not quarterly. Common, especially in the UK. I don’t like it. I like quarterly. You need to encourage people to take a longer-term view on their careers and their reward. Train people to do great work and value the benefits that flow, like success, and happy customers, and high self-esteem. And money comes after that. Monthly comms schemes breed ‘short-termism’ – which sometimes leads to candidate abuse, like people being pushed into jobs that are wrong for them, dishonesty and even fraud. Like start dates being finessed, or even phantom placements being created on the last day of the month. Or three ‘back-outs’, so sadly occurring on day one of the next month, after comms is paid.

10) Having a quarterly or month threshold that does not carry shortfall forward. In Australia, this is heading the wrong way. Carry – forward is being abandoned. In the UK, I suspect carry-forward is rare. Well, it will cost you a lot!  Let’s be clear, your bonus calculation is or should be this. People get paid, say, 30% above three times the ANNUAL base. We just happen to pay it quarterly. Do the sums. A recruiter has a huge month and gets a massive bonus. Next month she bills ‘doughnut’ and yet gets her base. Then a colossal month next up. If you don’t carry forward the monthly or (preferably) quarterly threshold shortfall, then at the end of the year, you will find you have paid the recruiter half of what they billed, and you are going nowhere. That’s how we get companies growing sales and going back in profit. Sound familiar?

11)  Pay on collected fees, not invoiced fees. Simple. We must have the money to pay the money. Great for cash flow and great for getting the business and the recruiters aligned on what a ‘good client’ is. And a good client is many things, including being one who pays within terms.

I know this sounds hard-core. But you are running a business that wants to be a high-performance one. And the hallmarks of high performance are non-negotiable high standards and high rewards for success. Don’t flop towards the mediocre.

Work out what of this suits your business. But be honest with yourself. Be brave enough to make the changes that lead to improvement. Of course, not everyone will be happy when you do make changes.

This is not about paying recruiters less. That’s the irony—this is about paying recruiters more. And the company benefits as well. That is the secret sauce.

I know it’s hard. But just making concessions is not the way. And if you must keep offering higher bases and more lucrative comms schemes to attract recruiters, maybe the problem is not the way you pay people but the fact you offer nothing else that recruiters value.

A bonus structure is not on its own a foolproof retention or motivation tool.

And trust me, there is plenty that recruiters do value in addition to comms.

Make sure you work that out in parallel with fixing how you pay people.

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