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Hello All,
I have joined a new organization as Recruitment Manager and recently drafted a recruitment services agreement to tie up with recruiting agencies that was sent for General Manager's approval. He came up with with a question - why payment terms on gross annual package? He feels that would be high, though we all know its a market practice to pay candidate placement fee on gross annual remuneration but i still need to give him a professionally convincing answer. Pls help, what should i write to him.


Your General Manager has a very valid question :)!

Yes, while you are right -historically it has been a market practice to pay a fee related to the annual package-there are some companies who are breaking away from the system. Given the globalisation and technological advances- the subsequent intermediation has disrupted the best practices worldwide.

(Infact-the advertising industry did away with the 15% fee almost a decade back-and it has some interesting spin offs- with the emergence of several boutique firms specialising in media planning, creative firms-an interesting case study! Or even the IT services industry is moving from the time & material concept to 'outcome based fee'!)

Essentially one pays fees in return for the value they get. In a contingent recruitment assignment- the fees are paid on 'success basis'-and for outcomes, not for the effort. So higher fees essentially are a reflection of the 'uncertainty builtin'. Higher the risk..the higher the benefit, right?

The solution the company policy/strategy. And the answer would lie to the question why do you need an external agency in the first place?

There is also the need for more transparency at both ends. Would the recruitment agencies be a vendor or do you expect them to be partners? Commitment begets commitment. Most companies arbitrarily share a position with a dozen consultants to de-risk..and expect each consultant to show 100% commitment in contrast! It doesnt happen that way always :)!?

Am positive your preferred partner would be able to arrive at a mutually agreed fee-if taken into confidence.

Here are some pointers -if one were to dissect some of the variables that impact the fees are dependent:

The rarity of the skill set you seek

Will nationwide search and relocation be required?

Seniority required

Start-up company? or Major corporation?

Number of positions to be staffed

Complexity of the position to be filled

Wish you all the best!

Believe me..if you think the cost of the recruiters fee are high..the cost of a bad hire is a multiple of that! People are not the most important assets of any organisation. The RIGHT people are ! must use external consultants only to find the talent you can't find for yourselves. Time to see the referral fees-as a return on investment?


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