The Dark Side of Recruitment: Let’s Talk About Fair Compensation ??
The recruitment industry is hard and is based on relationships, trust, and lots of thankless work. Just think, the countless unpaid searches you do. All of this is driven by recruiters, who put in endless effort to find top talent, cultivate connections, and seal deals. However, a growing annoyance is reverberating throughout the industry: Are owners of recruitment agencies underpaying the recruiters who are closing deals while taking an excessive cut from them?
Although it's a sensitive topic, it must be discussed. When recruiters join a company, they are frequently promised success stories and high salaries. However, the cracks appear when their efforts are not adequately rewarded by the commission structures. While they are compensated better than most other roles in HR, the work is still a sales role.
Here are 5 common ways recruitment company owners cap the compensation of recruiters, limiting their earning potential:
1?? Low Commission Rates on High Margins
Owners often keep a large percentage of the revenue generated from deals, leaving recruiters with disproportionately low commissions. For example, if a recruiter closes a deal worth $50,000, the company might take 80-90% of the profit while the recruiter receives only 10-20%, regardless of the effort they invested.
2?? Commission Thresholds
Many companies implement thresholds or "draws" that recruiters must hit before earning a commission. For instance, recruiters may not earn a commission until they generate $10,000 in profit for the company. This setup ensures owners cover operational costs first, but it often delays or reduces payouts for recruiters.
3?? Reduced Payouts on Smaller Deals
Some companies scale commissions based on deal size, giving recruiters a higher percentage for large deals and a smaller percentage for smaller ones. This discourages recruiters from pursuing smaller deals and ultimately benefits the company, which still profits from the recruiter’s work.
4?? Caps on Total Commission
In some organizations, even if a recruiter performs exceptionally well, their commission is capped at a certain percentage or dollar amount. For example, a recruiter might be limited to earning a maximum of $5,000 per deal, no matter how large the profit is.
5?? Non-Payment for Long-Term Revenue
Recruiters often bring in clients who generate repeat business or long-term contracts. However, many companies only pay recruiters for the initial placement or deal and keep all future profits from the same client. This cuts recruiters out of the ongoing value they created.
Why this is a problem:
1?? Demotivation Breeds Underperformance
It's discouraging when recruiters work hard—often going above and beyond—and only get a small portion of the money they bring in. Imagine receiving a small portion of the company's tens of thousands of dollars after closing a big deal. Demotivated recruiters are unlikely to maintain the same level of effort or output, and this unequal compensation kills motivation.
2?? High Turnover Rates
Inequitable pay structures exacerbate the already high turnover rate in the recruitment industry. If talented recruiters feel taken advantage of, they will leave the company quickly. They will relocate to companies where their efforts are valued and appropriately rewarded, or they may even launch their own ventures. In addition to upsetting the team, high turnover damages client relationships, which eventually hurts the bottom line of the business.
3?? Erosion of Trust and Morale
The cornerstone of any business is trust. Resentment and mistrust are fostered when recruiters believe that owners are exploiting them. It doesn't take long for a toxic workplace to emerge, which lowers team morale. This harms the company's reputation over time, both internally and externally.
4?? Ethical Responsibility of Leadership
It is the responsibility of recruitment agency owners to foster an atmosphere of fairness and recognition. It's true that running a business involves costs like marketing, operations, and overhead, but that doesn't justify keeping a disproportionately high percentage while paying the people who are really making the money less. Instead of maximizing personal wealth at the expense of the team, leadership should focus on creating a sustainable and equitable business where everyone thrives.
A Better Way Forward ??
Owners of recruitment agencies should:
???????? Assess your commission plans to make sure they are reasonable and accurately represent the value that recruiters add to your company.
???????? Give credit for outcomes rather than tenure: A solid commission plan that is based on performance demonstrates to your staff that effort does, in fact, pay off. ?
???????? Make an investment in your recruiters by giving them the resources, instruction, and acknowledgment they require to be successful. Your success is their success.
To recruiters:
???????? Recognize your value: Don't accept anything less than what you are due. Examine industry norms and promote equitable remuneration.
???????? Examine your options: If your contributions are not valued in your current position, look into opportunities with organizations that place a high priority on equity and transparency.
???????? Have a long-term perspective: Your network and abilities are your most valuable resources. Whether it's locating a better fit or even launching your own business, don't be scared to use them to create your own success story.
The Bottom Line
Relationships between employers and employees, recruiters and candidates, and yes, even within the recruitment teams themselves, are essential to the success of recruitment. Everyone gains when pay structures are equitable. Companies see long-term growth and stability, recruiters feel appreciated, and clients receive better service.
The best companies ultimately thrive when everyone has an equal opportunity to succeed, so let's build an industry that values people as much as profits.
What do you think? Have you encountered or seen this problem before?
?