11 December 2008

Recruiting Agencies Keep Calling

Originally posted 14 November 2007, on my Facebook Live Blog:

Corporate recruiting has its own supply and demand market dynamics. When the number of available and fully qualified people (supply) is far less than the number of jobs open in the region (demand), the cost of acquiring talent, in other words, hiring great people, rises. As those costs rise, there are businesses out there, big and small, who find ways to make money while demand outstrips supply.

Such businesses are known as recruiting agencies, also called headhunters, staffing agencies, or in my world, just “agencies”. They are third party agencies (sometimes referred to as TPAs), most of whom charge a fee to employers when a job offer is made and the new hire starts. Big money can be made by these agencies, when the standard fee starts at a 20% equivalence of the new hire’s first year’s base salary. Some firms get 25% (not from me though). Executive search firms, who typically work on retainer, have total fees around 33% to 40% equivalence.

I easily get a half dozen calls or more every day from these agencies. Most have no established relationship with me and are fishing for business. Their voicemails all say they have great candidates available now, which I know is usually untrue. Some claim they have a “perfect candidate” for us, even though that agency has never had a discussion with us about what we’re looking for (which usually is far more in depth than what gets posted on job listings). Our hiring managers will be the judge of who’s a “perfect candidate”, not a snarky sales person in voicemail.

The really outrageous claims made by these agencies are when they say they have an exclusive database of people who don’t reveal their information to any other agency or job board / career website. One firm claimed to have 12,000 software engineers who can’t be found any other way. Such claims are 100% bullshit. There is not a single qualified professional out there who would ever limit their visibility to a single agency, much less fail to reveal themselves on LinkedIn or Facebook or elsewhere. There is not a single job hunting guide book that suggests working through only one agency recruiter.

These claims are clearly meant to be heard by desperate hiring managers at companies where there is a dysfunctional corporate recruiting function, or sometimes no corporate recruiting function at all. Obviously, there is enough desperation out there to encourage so many agencies to keep calling around. Never mind these agencies typically have no one truly ready to submit.

There is a wide range of agencies out there. Some are small, sometimes even just one person. Many are just a small team operating as a small to midsized service business. Some are huge, well branded, global firms with offices in every major city.

Much more important from size, though, is quality of service. There is a very wide range of service from these agencies. Some are professional, some aren’t. Some truly get to understand the employer, some don’t. Some work ethically and strive to build a long term working relationship with the employer, while many fail miserably with ethics and honesty and have difficulty honoring previously signed fee agreement terms.

There are a handful of agencies I do business with on a regular basis. They are professional, they have taken the time to thoroughly understand our business and employee culture, and they are a pleasure to do business with. They make good money from us and they deserve it. They know who they are.

I’ve established three criteria for when I feel it is justified to expand a search’s resources beyond the use of the onsite team of contract recruiters whom I manage, to then engage the services of an agency:

1. Pivotal Job - all open jobs are important, but some jobs are more pivotal to the success of the business than others. Fill such jobs with the right people and there is a huge impact to the business. The cost of an agency hire can easily be justified when viewed against the revenue impact or productivity value of a pivotal job.

2. Talent Market Reach - since most agency recruiters use mostly the same tools and methods as those of the onsite contract recruiters, there is usually not much advantage in who the agencies already know, but among the few really good agencies, different recruiters may know or better potential to find different people based on the reach they have into the talent market through their existing network. Some agencies which focus on specialty functions, like accounting and finance, software engineering, and IT, continually reach out for talent for multiple clients, so there may be value in paying for who they already know.

3. Urgent Placement - given enough time, perhaps 4 to 6 weeks, a well managed and well resourced team of onsite contract recruiters can easily outperform any agency, at a fraction of the agency’s cost. So, only if the agency can source and submit candidates fast, before 4 weeks from the start of the search, does it make sense to pay the hefty fee. A secondary factor here is that as time goes on, the agency may give up on searching for the job, because they only get paid upon the hiring of their candidate. If they feel the job is not feasible to fill after many weeks of effort, they will move on.

If the job isn’t pivotal, if the agency can’t prove they offer a unique reach into the talent market, and if they can’t do it urgently, then giving the search to the agency is utterly unjustified. My first responsibility is to the quality of who we hire, but I also have a secondary responsibilty to manage the average cost per hire, within a context of the level of talent hired. Agency fees are clearly the most impactful way to manage such costs. Literally hundreds of thousands of dollars can be spent or can be saved with agency fees.

My voicemail box racks up lots of calls. Easily 9 out of 10 voicemails are from agencies, most of whom I have no interest in doing business with them. It’s an annoyance. It’s a sign of our times and of the economy. The demand for high quality talent in San Francisco, New York City, Boston, London, and elsewhere, clearly is outstripping the supply.

My team is doing well getting most of our jobs filled.

So, with those voicemails, it’s


Update 11 December 2008:

Surprisingly little has changed with how I feel, understand, and experience agencies since I first wrote the above 13 months ago, except for the economy having tanked and the frequency of those unsolicited agency calls has dropped to less than one a day, thankfully. I now work for a different employer since then.

Hiring managers where I work have been ravenously addicted to using agencies after years and years of a prior HR administration allowing agencies to invade the business. It took a brand new, strong executive leader to help clamp down and enforce the wishes of the business head and myself to eliminate the usage of agencies. We finally have some control of our recruiting costs. I am enjoying a current moratorium on agency usage.

It's been literally a whirlwind of a year in getting agencies in line with a new agreement template and to then curb back usage, req by req, agency recruiter by agency recruiter.

Now that times are tough, and companies everywhere are curbing expenses, holding back hiring, and some companies have held massive layoffs, with ample job seekers just about everywhere, the supply and demand market dynamics which I mentioned at the beginning of the original blog post has drastically shifted. The underlying principle remains, but the shear opportunity for agencies to do business has shriveled up like a solitary dandelion in the Mojave desert at high noon on a furnace blasting August day.

It reminds me of 2002 and early 2003 when agency activity levels dropped like a rock, driving many out of business, and some agency recruiters out of town. It was an important and healthy cleansing of the recruiting industry. Of course by 2005, the cycle reasserted itself and agency activity levels began to peak again. But today, we have experienced a steep decline in agencies.

After all that I've experienced these past 13 months, I'm proud to say that I stand by my three criteria for future justification of agency usage: pivotal job, talent market reach, and urgent placement.