Fee Splits: Right or Wrong?

I received a call this week from a highly experienced and long-standing Executive recruiter whose nose had been severely put out of joint and they wanted to tackle me on a certain issue.  I know what you’re all thinking but sorry to let you down – it wasn’t me or something I had said that had upset this recruiter (not this time anyway).  This recruiter had been the subject of one of the most contentious issues in our recruitment industry.  This must surely be one of the most divisive issues we have.  What elephant in the room am I referring to?

The split fee issue.

Now I’m well aware that many recruitment firms do this internally.  You know, when Johnny Rookie stumbles upon a great candidate but hasn’t managed to win any business from clients yet, but Sally Farquar-Bigbillingham has a great role on with one of her (exclusive, darling) clients, so they agree to split the fee 50/50 (once poor Johnny has been put through the wringer and made to do all the leg work and admin).

But this was of a different flavour entirely.  A fee split discussion between two recruiters from different firms.  I’m keen to get your opinions on this matter, so to simplify things I have decided to relate the story like a film script.  Let’s stick with our characters Sally and Johnny, but bear in mind they are from different recruitment firms, in different parts of the country:

                [Sally’s mobile phone rings]

Sally:    Hello?

Johnny:    Hi is this Sally?

Sally:    Speaking.  Who is this?

Johnny:    You don’t know me.  I’m a fellow recruiter and saw the ad you placed in the paper yesterday.  I happen to have the perfect candidate for your role.

Sally:    Oh excellent, thank you for that.  I am just on my way to review the applications now so please do send the candidate through.

Johnny:    No love, you don’t get it do you?  I called your client up to tell them I had the perfect candidate, and for some reason they told me I had to talk to you about referring the candidate in.

Sally:    Why would you call my client when I’m recruiting the role?

Johnny:    Because I have this candidate who would be perfect, don’t I?  So anyway, how about we both get something out of it and split the fee 50/50 if they take my candidate.

Sally:    I don’t think so.  I won a competitive tender to recruit exclusively for this role so I’m not about to lose half the fee to you.

Johnny:    Well I have this candidate exclusively and I want them to be considered for this position, so what are we going to do about it?

Sally:    If I were you I would advise your candidate to apply directly to me for this role and I’ll take it from there.  However, I would suggest your candidate is severely lacking in judgement if they are at GM level but agreed to register exclusively with you – whoever you are.

Johnny:    I’m a recruiter at X and I’ve been doing this 10 months.

Sally:    Well I’ve been doing this over 10 years and I don’t like the cut of your gib.

Johnny:    I know, I looked you up on Linked In.  But why are you standing in the way of the best outcomes for my candidate and your client?

Sally:    I am not standing in the way young man.  I am following due process and your candidate is perfectly entitled to apply directly to my ad.  It is you who is acting without integrity or ethics.

Johnny:    [Getting irritated and aggressive] Listen lady this can be an easy transaction for us both to make money.

Sally:    You should be taking the long term view on this and doing what is right for your candidate, rather than treating them like some commodity.  They will repay you for it in the long run.

Johnny:    Look, I’m not just in recruitment to make placements and to make money, I really care about the candidates and clients too.

Sally:    Pull the other one.

Johnny:    So you won’t do a split?

Sally:    No.

                [click – click – both hang up]

Ahh, the fun and games of fee splits eh?  Now I myself am a little undecided where I stand on this issue.  I certainly think that Johnny showed a lot of front and guile that will be useful attributes as a recruiter.  But he did go a bit far with the unprofessionalism in my opinion.  Fair enough to ask the question, perhaps, but taking it too far to push it as hard as he did?  Somewhat lacking in respect and integrity?

I myself have partaken in fee split scenarios with competitors of mine in the past.  The difference in these occasions though was that the competitor approached me directly saying they were struggling to fill a role and did I have any candidates that might suit, for a 50/50 split?  It so happened that I did and the transaction was a successful one.  It did leave me feeling like I’d had a fling with an old flame who I had vowed never to go near again though.  But the allure of the split fee was too much to resist.

I know I’ve referred to the real estate industry in the past, but again there are similarities here.  Estate agents from one firm often show prospective buyers around the house listings of competing agencies, if none of their own stock match the requirements, for a split fee agreement.  I myself was introduced to my house by a Barfoots agent, when it was listed through Harcourts, and they agreed a fee split between themselves.

So anyway, Sally and I are keen to hear your opinions on this.  Where do you stand?  Was Johnny rude and obnoxious to make the approach?  Or is Sally being too precious and indeed standing in the way of the best outcomes for his candidate and her client?

What made Johnny think it was ok to call a client based off a co-branded ad with another recruitment agency?

Or does this highlight a difference in recruitment style and approach between Wellington and Auckland?  It would certainly be interesting to hear the thoughts of any of my Australian readers on this too, who I imagine do these kind of fee splits on a regular basis…

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16 responses to “Fee Splits: Right or Wrong?

  1. I found myself in a very similar situation recently. I had ‘reverse-marketed’ a very senior legal candidiate who was coming back from overseas, into a large, high profile organisation. I got a call back from the company saying they were actually looking for a General Counsel at the moment and my candidate could be well suited, however they were using an executive search firm for the assignment. Instead of trying to wrangle a fee, I was happy to step aside and refer my candidate to the executive recruiter. After all, if my candidate gets the job, I’m fairly sure he’ll remember me fondly and his business will probably come my way. It’s the long game that counts in my opinion.

  2. Think Johnny needs to look at the bigger picture, respect the fact that Sally has won the role and refer the candidate to her without demanding a fee. If he was any good he would be working hard in building in depth relationships with his clients, then he would have quality roles like Sally. The key test to me is that the client referred Jonny to Sally – the client clearly has confidence in Sally. If the client didn’t then he would take Jonny’s candidate and then debate the retainer with Sally.

    There maybe other scenarios where a candidate may have been referred to the client sometime ago and there has been alot of work done between the recruiter (Jonny) and the client. Then by some cruel twist of fate another recruiter (Sally) won the assignment because the client wants to look at the market more broadly and Sally’s company had the PSA. Think in that scenario there should be a fee split according to the amount of work done by ‘Jonny’

    Bottom line though the industry should be focussed on building exclusive and retained relationships with clients. We’ll end up providing a better level of service to our clients, the industry will be held in higher regard and we’ll bill more in a shorter period of time.

  3. I realise that the example above is just an example so I’ll try not be too pedantic, but here goes my take on it:

    First of all, Johnny is in a terrible negotiating position. The first thing I’d do is ask Johnny to define ‘perfect candidate’. Given that I have taken the brief and work closely with the client, Johnny has opened with a very presumptuous proposition and I’ll be the judge of whether Johnny really does have a perfect candidate or not- thank you very much.
    Secondly, to expect 50% is laughable. I would ask him to justify how he can expect so much?! At the end of the day, assuming this candidate is the perfect candidate (and really , is there such a thing?), I would offer Johnny 10% and only because I am feeling particularly generous. Why? Because 10% of something is better that 100% of nothing. If Johnny doesn’t like it, tough luck.

    I define my own recruitment brief as finding the best suitable candidates who are on the market (passive market included) and who are interested in the role. If this so called ‘perfect’ candidate is choosing to exclude themselves from the process, then they are not on the market and not interested in the role. End of story.

    By the way, I was once emailed a candidates CV from another recruiter (and prolific serial spammer in Wellington- Any guesses who ;P) ,excluding any clues of who they were and where they actually worked, but I was assured that it was just the right person for the job. Based on the skill set and seniority alone, that couldn’t have been further from the truth.

    I think that a basic etiquette should be followed if attempting to engage in a deal that may result in a fee split. First of all, a polite introduction of why you are calling , should be followed up with a question like this “ What is your general policy when it comes to fee splitting?” and “Under what conditions would you consider splitting fees with me?” followed by your own value proposition. It may work, it might not, but as always, a simple sales transaction is shallow and often unattractive. It would be better to form some sort of professional relationship based on mutual respect. It might just open up an opportunity for further dialogue in the future…..

    • Excellent comment Black Adder. I would like to point out that whilst Johnny and Sally are pseudonyms, this is not an “example” and is a conversation that actually took place last week.

    • If this so called ‘perfect’ candidate is choosing to exclude themselves from the process, then they are not on the market and not interested in the role. End of story. – now that is a little God like don’t you think – what if that candidate does not want to deal with you for what ever reason – should your client miss out ??

      It is a small market and for whatever reason many candidates will not deal with certain recruiters for what ever reason – clients shouldn’t be precluded from some one who is actually on the market, but doesn’t want to deal with that recruiter, and therefore not included.

      In essence you’r saying the best you can source, maybe not the best the market has?

      All the exclusive deals seem to suit the recruiter , but from the outside looking in restrict the clients available pool of people.

  4. What if you split the fee and the candidate fails to meet guarantee?….One person has their portion and the other has less than 100% of a fee and 100% of the responsibility to replace the candidate. Paying the fee split at expiration of guarantee gets around this but how keen will the referring recruiter be if they have to wait 4-7 months to get their money?

  5. I have met many “johnny’s and Sally’s” in my career – what I can say is that they both make very good money, however one does it the right way and the other… well, does the term “cowboy” ring any bells?

    I have a recruiter friend (who is very good at what she does) who offers muffins and coffee in return for splits. Surprisingly I have done business with this person – expectations are set (thats the main thing) and if you dig around deep enough there is a win win in it for both of us. Splits are a good thing but its about setting some solid boundaries and dont be shy to swap terms of business as it is professional agreement in every sense.

  6. Go Johnny! To a degree – we are currently in a similar position where a client has signed a retainer for a search for a particular skill – 8 months ago! I have now had one of my clients show some interest, and he is the blueprint for the role. I ring the client, they say ( under alot of stress and duress ) they have signed an exclusive, I call the agency and they want me to send the cand through ( WTF -$40K fee , I’m thinking no to that!! )

    so

    Client has an urgent need

    I have perfect guy

    Retained agency is now stopping that client fill a very urgent vacancy – they are putting OK people up, but not the right ones

    I suppose it is ok to say I should hand the guy over, but hang on, to get the other agency out of a very large hole and part with $40K??

  7. They are both missing “best practice” recruitment.
    Best practice: “Cowboy”recruitment, Johnny should just get that CV into the hands of the chief decision maker , bypassing Sally’s agency, even if he has to wait in the company’s lift in the morning. If the candidate truly is the only right one – he’ll get an interview. Bypassing PSA suppliers is a core competecy requirement for Cowboy recruitment.
    Best practice – PSA recruitment: Sally knows there’s a candidate out there who knows ( or will sortly know) that his cowboy recruiter can’t get him the interview he promised. Most probably it’s the candidate that saw the advert & alerted Johnny to the opportunity. Sally changes all her ads to put in large type words to the effect “This position is being recruited exclusively by Sally – only candidates that apply directly to Sally can be considered for the position”.
    Smiling, Sally then waits for the candidate to apply.
    Love this business!

  8. In response to George: “If this so called ‘perfect’ candidate is choosing to exclude themselves from the process, then they are not on the market and not interested in the role. End of story. – now that is a little God like don’t you think – what if that candidate does not want to deal with you for what ever reason – should your client miss out ??”

    No it is not God-like. For this candidate, it’s a simple act of making a choice to either include oneself or exclude oneself in the process. All choices have consequences.

    Perhaps an analogy here would help to explain it better. I’ll use the example of a real estate agent selling a house.

    Suppose I saw my dream home on the market, I really wanted to buy it and would pay above the market for it (perfect buyer), but I didn’t happen to like the real estate agent (for whatever reason). Then by choosing not to express my interest, I am simply cutting off my nose to spite my face. It is not productive to my goal of owning my dream house by excluding myself and at the end of the day, it will not stop the agent from selling the house. The agent of course will end this story with a happy buyer and a happy seller, and he/she will have been paid to achieve this outcome. All parties involved will be oblivious to my existence. Still a perfect buyer?

    Also in response to George- “In essence you’re saying the best you can source, maybe not the best the market has?” That’s a wild assumption to make. An exclusive and well managed process is the best way to determine the best that the market has to offer, not the biased , outside opinion of a spectator who probably only has a short ad to go on and isn’t aware of the other candidates who may have actually applied to the role. How do you know there isn’t a very strong internal candidate? How do you know they are not looking for somebody to develop in the role over 3 years or more? How do you know that the ‘perfect’ candidate is actually applying for the ‘perfect’ job and not limiting their own growth by stepping into a position that might be a sideways move?

    Flip it on its head for a minute and you will see that by being impartial, you can work with your client and your candidates to determine the best long term solution. Permanent candidates are often hired on potential, not just expertise. It takes a deeper look to determine the perfect candidate, not just an unqualified belief- however strong that belief may be.

    Take off the rose tinted glasses

    • Mmm, ok, I’d like to think recruiters are a cut above real estate agents, after all it’s the roles we secure for people that give them the income to buy the house, so in my humble opinion we have a far greater effect on what someone can earn and ultimately how their professional and therefore personal life pans out – this is also indicative when I hear candidates say they will never deal with recruiter x – they mean it and on more than one occasion have seen fantastic candidates not put themselves in the running because of a recruiter – so the client never has the opportunity to say whether they are good or not because a process that is supposed to assist them actually prevents them from potential options? If you were an employer, hiring for an important position do you want to see the best out there or the best the agreement you signed will allow you to see ( Blue Chip anyone….! )

      Don’t get me wrong , there are some very valid points you make, but I just don’ t think it should be all about the process ensuring the recruiter has a guaranteed fee.
      I’d imagine if someone was working with Andrew Banks from Talent2 or Greg Savage from Fireband said :hey, I have potential $40K fee here, but I’ll do the right thing and give the candidate away to keep the process…………career limiting stuff ( as it would be if any recruiter said that to their employer!) ( Jonathan – you see both sides – comment?? )

      • Thanks for your contributions George and it’s interesting you mention Greg Savage and Andrew Banks – perhaps I can get them to voice their opinion on this matter here too…

        My take on it is this: Johnny went in too agressively and bolshy and immediately got the experienced Exec recruiter’s heckles up, from which there was no turning back. A softer approach, with a polite introduction and a proposal for a win-win-win would be my approach. It is possible for Johnny to win (he gets half a large fee), Sally to win (she places who is indeed the perfect candidate into the role for her client and will be seen to have utilised every possible referral method going), and for the candidate to win (as they land their dream job). But this is all perfect-world stuff and of course it rarely works like that in practice.

        Johnny should have made a smarter approach to Sally, probably been politely rejected by her, and then done the right thing by the candidate and referred them across to the job. I still imagine that the chances of them really being the perfect candidate are slim anyway, as Johnny doesn’t actually know anything about the role apart from what he reads in a newspaper ad, so this could all be a moot point anyway. But at least his credibility would remain intact with both the Exec recruiter and his senior-level candidate which will no doubt lead to further opportunities for business and partnership arrangments further down the track.

      • George, I hear what you are saying about walking away from a $40K fee, however the assumption of that fee being yours if false. As in the example above with Johnny and Sally, Johnny left with nothing and has no entitlement or claim to the fees involved. Truth be told, he never actually lost anything, except the opportunity to build some goodwill with a senior candidate who might be a future hiring manager.

        I don’t think it’s right invoking Greg Savage or Andrew Banks , and saying that your career would be limited if you went to them and said that you weren’t fighting for somebody else’s fee. Maybe one of them will weigh in with a comment here but my feeling is that any mature business owner or manager understands that it’s the clients who pay the bills and the more clients you have out there, the more work you will get and the more money you will make. I’d like to refer you to an article written by Greg Savage where he talks about a good friend of his, Graham Whelan, who got a good deal of his business from candidates he did not place himself – http://gregsavage.com.au/2010/02/15/large-metallic-balls-or-not-customer-experience-is-the-pathway-to-recruiting-greatness/ . It’s difficult to quantify goodwill but I can guarantee you that it is very valuable.

        So in the example of the senior candidate you never got to place, he/she might need to replace a whole team of people in the future and potentially may have far more than $40K to part with. The game plan is to show some value, develop a relationship and secure the next round of work, something that is easy to achieve especially if the candidate doesn’t like the recruiter who was running the first process. It’s the difference between winning the battle vs. winning the war.

  9. One I’ve noticed is that the comments above have covered the value of a split fee to both parties, the best/worst way to introduce yourself to a competitior and also doing the best thing for the client – but what about doing the best thing for the candidate?

    The fact that Johnny appears to have little tact, few morales and no respect for the industry he is also completely blocking the ‘perfect’ candidate from having any chance of getting the role. There already plenty of ‘agencies’ following bad practice giving the industry a bad name and ruining good candidates chances of career progression through lack of contact or interviewing skills, nevermind the inability to communicate with fellow recruiters…

    Rant over…

  10. Actuarial Recruiter

    Nice come back there Black Adder with that link. It sounds like Johnny is from a larger KPI focused recruitment organisation trained to focus on the now or this week.

    My managers have always warned me to stay away from inter-agency fee split scenarios, as tempting as it is from time to time.

    If I had a search going for 8months and random junior recruiter, spoke to me about a perfect candidate I would fleece them for information on the candidate and If was still unable to work out who it was I would offer them our referral program, giving them a small fee.

    The most important aspect of our roles is service and professional conduct. 8months is a long time for your client to be without the right candidate.

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