Incentives for Recruiters?

By Nov 1, 2003
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HR Magazine, November 2003




Most recruiters don't get incentive pay for superior performance, but some experts contend they should.

Using incentive pay to reward employees for exceptional performance is a popular motivation and retention tool. But for most in-house recruiters—the professionals who generally bring those stellar performers on board—incentive pay for their own work is the exception rather than the rule.

“The recruiters we know get standard bonuses or are on their company’s incentive pay plan, but it’s not specific to recruiting,” says Carl Schmitt, a principal of Presidio Pay Advisors in San Francisco.

About one-fourth of in-house recruiters receive incentive pay on their own—not as part of a companywide incentive program—according to the 2003 Recruiting Metrics and Performance Benchmark Report issued by Staffing.org, a nonprofit HR metrics firm in Willow Grove, Pa. Many of those who do receive it are in health care, information technology or other industries that require continual recruiting or hard-to-find talent.

For most companies, though, whether to provide incentive pay to in-house recruiters is, at best, an open question. For many, the answer is no.

A number of employers who don’t provide it say they can’t afford it or they don’t have the resources—or the need—to track recruiting activity. Or they voice concern that offering incentive pay could turn recruiting into a numbers game. Some employers say it’s not worth the time and effort to design a formal incentive compensation system for in-house recruiters if the company has only one or two such professionals on the payroll.

“It just hasn’t come up for discussion,” says Sally K. Fanning, SPHR, director of compensation at Praxair Inc., a 25,000-employee company that has one in-house recruiter. Praxair, an industrial-gas manufacturer based in Danbury, Conn., relies mainly on its hiring managers and HR managers in the field for recruiting, says Fanning, a member of the Society for Human Resource Management’s Compensation & Benefits Committee.

Moreover, some experts add, in an economy with many resumes chasing few jobs, recruiters presumably don’t need monetary incentives to come up with superior candidates for job openings.

Thus, in light of such arguments, are there any reasons that in-house recruiters should get incentive pay?

There are, some consultants say, maintaining that the best in-house recruiters are worth their weight in gold. Top corporate recruiters “are very business-focused, have good relationships with hiring managers and know those managers’ styles inside out,” says Marc Kroll, founder of Effective Compensation Strategies in Woodbury, Conn. “It’s a competency that has to be well-paid-for.”

Moreover, some experts say, incentive pay can help retain first-class recruiters, thus saving the company a bundle on fees paid to outside search firms.

It’s not unreasonable, some consultants add, to offer recruiters incentives equal to as much as 20 percent of their base pay in exchange for hitting established performance targets. Top performance for recruiters generally means attracting and landing superior job candidates in a timely and cost-efficient manner.

Setting the Targets

If done correctly, some experts say, incentive pay for recruiters—as for other employees—rewards the achievement of specific goals established for the individual. Often, bonuses are also tied to the financial performance of the company and of the recruiter’s unit—the HR department, perhaps, or the business unit to which the recruiter is assigned.

At T-Mobile, a fast-growing, 20,000-employee telecommunications company in Bellevue, Wash., the 24 recruiters receive quarterly bonuses pegged to their performance in meeting individual goals, says Randall Birkwood, director of talent acquisition. The recruiters’ goals, which they draft themselves with manager approval, must support T-Mobile’s corporate goals.

To foster the corporate goal of “quality of hire,” for example, a recruiter’s performance may be evaluated according to the number of top-performing hires he or she brings in, Birkwood says. Or it may be judged according to other measures, such as how few interviews it takes on average to produce an offer.

T-Mobile tracks attrition and new hires’ first-year performance. The final quarterly bonus is based on the recruiter’s performance as well as the performance of T-Mobile and its HR department, Birkwood says.

In companies that offer incentive pay for recruiters, typically about half of the bonus reflects personal performance, a fourth is tied to unit performance and the remaining fourth is linked to company performance, says James Hatch, a partner in the HR Services Group of PricewaterhouseCoopers LLC in New York.

Familiar Yardsticks

Like HR in general, recruiting has become more metrics-driven to demonstrate its value to the bottom line. “If you’re going to figure out the return on investment on an employee, you’re forced to measure your investment,” says Greta Sherman, a managing partner in the Louisville, Ky., office of JWT Specialized Communications, a London-based recruiting consulting firm.

The best-known measurements of recruiters’ performance center on the cost of getting a new hire on board, the speed of the hiring process and the quality of the new employee. (To learn how some common metrics are calculated, see “Behind the Metrics,” left.)

But if an organization relies too heavily on one or two metrics or doesn’t use metrics correctly, some experts say, recruiters can become overly focused on speed or filling slots rather than on quality of hires, or the employer can establish unachievable targets. “You really should be using only metrics that are important to the company,” says Bill Coleman, vice president of compensation at Salary.com, a Needham, Mass., provider of Internet-based compensation tools.

Following are three major approaches for evaluating recruiters’ efforts:

  • Cost-per-hire, a common measure of efficiency, can be useful for firms that want to lower recruiting expenses. It’s a measure that “goes to the bottom line, which a lot of companies care about now,” says Coleman.

But Kevin B. Wheeler, president of Global Learning Resources Inc., a recruiting consulting firm in Fremont, Calif., cautions that “it shouldn’t be your central metric.” Overemphasis on cost-per-hire can slow hiring and lead to penny-pinching that glosses over quality of hire.

A better metric, according to Staffing.org, is a recruiting efficiency index. It involves comparing recruiting costs to the compensation of new hires, and “it recognizes that the higher the salary, the longer it takes to hire someone,” says the firm’s president, Nick Burkholder.

  • Speed is also essential to good hiring, which prompts many companies to track time-to-fill, or time-to-start or both. While it’s important to meet hiring managers’ needs promptly, this metric too can lead to a speed-over-quality mentality if relied on too heavily. In addition, time-to-fill reflects circumstances beyond a recruiter’s control, such as the difficulty of recruiting for a hard-to-fill position or a hiring manager’s unavailability.

Wheeler suggests instead tracking the time it takes to present a qualified candidate, starting the day that recruiting for a job begins and running to the day a recruiter sends the hiring manager the resume and other materials on a candidate.

  • Quality-of-hire, although subjective and difficult to measure, is the essence of any good incentive pay system for recruiters.

One way to measure it is to track turnover. It’s an indirect indicator, to be sure, but it’s a start. Some employers give recruiters a bonus if candidates they refer stay on a full year.

A better way to measure quality-of-hire, some experts say, is the growing practice of evaluating each recruiter’s effectiveness in meeting hiring managers’ needs. This metric determines a manager’s satisfaction with both the recruiter and the new employee. To measure the former, consultants recommend written surveys that ask hiring managers for ratings on a scale of 0 to 5 according to various criteria, including recruiter scheduling and the quality of referred candidates.

Satisfaction surveys are most useful if they compare the hiring manager’s after-the-hire impressions with targets agreed upon previously, experts say. For example, how did actual time-to-start compare with the originally planned time-to-start? Similarly, a new hire’s productivity and cultural fit can be gleaned from performance reviews three, six or 12 months after hire and compared with the job description used during the recruiting process. A Staffing.org survey released this year showed that 45.8 percent of employers measure hiring managers’ satisfaction.

The Need to Be Flexible 

Some experts who advocate offering incentives to recruiters also advise tweaking specific goals when necessary. For instance, continue to measure time-to-start, but change the target number of days if circumstances change. In normal times, the target might be 60 days. If business slows or a position is hard to fill, the target might be 80 or 90 days.

“You have to be realistic about your expectations,” says consultant James Majka, former director of HR at Hartford Financial Services Group in Hartford, Conn. If circumstances put recruiters’ potential bonuses out of reach, it can damage morale, so keep targets reasonable.

Recruiters should not be held accountable for difficult times when hiring is slow, says Hatch of Pricewaterhouse-

Coopers. “My recommendation is to be conservative at both ends. When not a lot of hiring goes on, don’t necessarily [decline to] pay incentives. At the other end, when a lot of candidates are flowing in, ... [recruiters] shouldn’t necessarily get the best bonus.”

Employers should also strive for balance. Most companies combine several metrics in a “performance scorecard” that serves as the basis for incentive pay. Says compensation expert Kroll: “In any performance scorecard, less is better. You want recruiters to concentrate on three, perhaps four, metrics. People can’t really hope to concentrate on five or more metrics.”

In addition, give appropriate weight to the metrics used to reflect specific hiring goals and situations. For example, it’s more complex and time-consuming to hire CEOs than secretaries, so cost and time metrics should reflect this reality.

Although designing an incentive compensation system for in-house recruiters may sound difficult and time-consuming, it could pay off in the long run. As the economy improves and jobs become more plentiful, paying recruiters more to bring in first-rate applicants could be money well spent.

Carolyn Hirschman is a business writer in Rockville, Md. She has written for various business publications and has covered workplace issues since 1991.

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