The Results Are In
Our deep appreciation goes to all the respondents who took the time to complete the survey. There are challenges to keeping a survey concise when commission schemes have so many complex factors, and the context in which they are designed also varies greatly. A start-up business may have little to offer but commission and potential, whereas a mature business that relies more on brand awareness and committed house accounts, may not need to offer such high rates as an incentive.
Anonymously, we asked a series of questions designed to gain an understanding of how various recruitment business leaders are currently structuring their commission schemes. Respondents came from many different markets, but were dominated by engineering, professional services and IT/tech recruiters.
Utilising her vast knowledge, experience and understanding as an award-winning NED and consultant to the recruitment sector, Alison Humphries has analysed the results of the survey to provide her insight and advice for recruitment business leaders. Read on to discover the key findings…
Temp Vs Perm
More than half of respondents generate at least 75% of their net fee income from permanent recruitment. Just 15% described themselves as predominantly temp/contract recruiters. From my experience, most recruiters are held back from developing the value of their business via temp/contract supply by three factors:
Cash flow
Concern about the admin/compliance
Commission
You might be surprised to see commission on this list. A common mistake is to apply exactly the same commission structure to temp NFI as perm NFI, especially where consultants are expected to do both. Because NFI grows incrementally on temp/contract business, the immediate “riches” of perm fees continue to drive behaviours. The majority of respondents who are not differentiating commission schemes for temporary and permanent placements, confirmed that their schemes were not driving desired behaviours currently.
Driving the Right Behaviours
This brings me to the next observation. While 2/3 of respondents believe their current scheme drives the behaviours they want (and are necessary), a whopping 34% of business owners say it doesn’t. That’s a pretty big issue to have in your business and not do something about. It may be that your market conditions have changed, and it is essential for your team to bring in more new business. But as long as they aren’t especially incentivised, they will carry on doing what they’ve always done.
Indeed, almost no respondents claimed to base any part of their commission payouts on anything other than fees generated.
“What’s wrong with that?” you may be asking. After all, if there are no fees then there’s nothing to pay commission with, is there?
True, but an exclusive focus on fees will encourage teams to drive that at any cost. The cost to your business could be terrible data, neglected compliance, or lack of account development, for example.
Consider, as one respondent does, allocating commission at the same percentage as the fee. If you are in a market where there is scope to drive average fees (£ or %) up, this could work for you.
If consistency is an issue, look at how you can reward this as part of your scheme. One client I work with agreed to address this issue by paying out at his highest percentage for a year ONLY if the consultant had produced a minimum level of placements and KPIs each month. It takes proper management to ensure there is no stockpiling or frontloading of placements, but that’s what you’re there for.
As accurate data becomes a significant competitive advantage to your business, leaders should consider incorporating steps like these in any review of commission.
Payout Percentages, Thresholds and Base Salaries
65% of respondents pay commission based on revenue, while 35% pay on gross margin (net fee income). This probably reflects the bias of the sample group towards permanent placements, where the revenue and NFI figures are usually the same.
50% of our survey use a monthly or quarterly threshold on which no commission is paid. Usually in the single £000s, this appears to reflect an estimated desk cost (which, one hopes, takes into account business support staff, advertising and marketing). The highest monthly threshold reported was an outlier at £12,000, which appears to be the equivalent of one placement fee in that sector.
Just 3% of results still tie commission to base salary. This approach treats base salary as an advance on commission, so the higher the salary the lower the commission. This approach was more widely used in the 20th century and early noughties, and mitigates against runaway pay inflation, but does tend to be combined with higher base salaries (and so, fixed costs).
Our follow-up discussions do indicate that base salaries have increased from pre-pandemic times by up to 30%, but this was not necessarily accompanied by any sustained increase in performance. That’s bad news for those business owners who felt obliged to pay more to retain staff in 2021-22, but now find themselves with a significant contractual overhead.
The majority of commission schemes start at 10% of fees, with the customary tiering of tranches of billing. These increase to a maximum reported rate of 75% (although the majority – 6 in 10 respondents – go only as high as 40% payout).
What was surprising here was that in most cases the very high “super bonus” rates were being paid out for performance which doesn’t take one’s breath away – for example, a 60% payout rate for performance of £240,000 billings p.a. – and that doesn’t include basic salary.
Some respondents will argue that average fees in their sector are lower than others. This may be true, but that doesn’t make consultants equally profitable if they make the same number of placements as a “high-fee” sector. We recommend that business owners experiencing static fees since 2020 make an active plan to change their average fee profile, including customer account reviews and incorporating changes to the commission scheme.
For reference, the majority of commissions are calculated monthly, with a couple of respondents adding a kicker at the end of a quarter or year based on total billings above a set figure.
About 10% of respondents use a cumulative approach. In other words, as each billing milestone is reached by an individual in a given period, they convert the whole commission to the highest percentage rate. This may be highly attractive to consultants, but can lead to over-reward and inconsistency. It makes a lot of sense for recruiters to win big some months if they can engineer start dates. And most businesses need consistency for cashflow (and sanity) reasons.
The conclusion? Watch out for rampant pay inflation without rampant increases in productivity. Especially if it’s a fixed cost, like basic salary.
And Now Let’s Talk About Fee Splits
While 35% of respondents have dedicated BD managers/staff, a much bigger 70% employ dedicated resourcers. Just under 5% have no “360 degree” consultants. However, it appears that most businesses are not splitting fee allocation for commission purposes – 78% say, in effect, that they treat resourcers as a business cost.
Regular readers will already know my views on this. The operating costs of running a recruitment business have increased dramatically for most, including tech, advertising and marketing.
Resourcers need to pay their way via a return on investment. But too often, resourcers have been added to assist recruiters, who continue to be rewarded as if they were doing the whole job. The same seems to apply to most “house accounts”. These are usually substantial clients that were generated by a director of the business. But the whole fee is allocated to the recruiter who, in effect, resources the role only.
Of those that did split fees, the average proportion for resourcing was 41% of the commission – (remember these are not necessarily dedicated resourcers, but could include 360 colleagues). The highest split allocated for the candidate part of the process was an outlier at 80%. Now there may be something very unusual in this respondent’s sector that makes this appropriate. But for the vast majority of recruiters in my network, the effort this year has gone into client and job acquisition. Candidate availability has eased. But how have we reflected this in the way we reward our teams?
The Critical Importance of Regular Reviews
I am afraid the answer is staring us in the face. Despite the fact that almost all commission schemes included in this report are non-contractual and discretionary, owners and managers haven’t touched them for years. It’s not easy to push change through, and most people will react to a change only in terms of what they think they are losing. But as long as recruiters are only encouraged to focus on billing, they will carry on working the few, C-grade roles they have indefinitely, rather than moving on to business development. And, as any employment lawyer will tell you, the fact that your policy says “commission is reviewed regularly” carries little weight if you never do.
In law, you may have created quite another policy from the one you intended.
Reviewing commission should never be done in isolation. Please bear in mind that it will affect your KPIs, processes, team behaviours and even performance management.
Thank you for reading, we hope you found this report insightful.
To learn more about Alison and Recruitment Leadership can provide strategic support, holistic advice and objective expertise to bring your business goals within reach, get in touch today:
+44(0)7720677557
alison@recruitmentleadership.co.uk
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