Why HR Is Addicted to Contingent Recruiting
It’s easy to see how it happens. The organization is growing, and hiring managers are breathing down HR’s neck to bring qualified candidates into the recruiting funnel. With so many open recs and so few internal recruiters, it’s natural to look for outside help. Is a contingent recruiting model in the best long-term interest of the company though? For organizations with a long-term horizon looking to make similar hires over time, we argue that the answer is almost certainly not.
At first blush, a contingent model seems like magic for many reasons. 1) Risk and responsibility are shifted from a company’s internal HR team to the 3rd party recruiter. If the agency doesn’t find the ideal candidate, the hiring company’s direct cost is $0.00. Additionally, if hiring freezes, the internal team has not wasted weeks on sourcing and outreach; the agency has. 2) If the search is successful and the hiring company has a cash outlay, that payment is directly tied to value in the form of a hire. 3) Over time, agencies generally allow an organization to easily ramp up and ramp down with hiring demand.
There are obvious and not-so-obvious downsides of this model. Regarding the obvious, a successful contingent recruiting effort can be expensive over time. Agencies must allocate the sunk cost of the “misses” into the fees for the “wins.” With typical fees in the range of 20-40% of base salary, a few big wins can really add up. Put enough of those together in a year, and the company probably could have hired internal recruiters at a lower total cost.
Now let’s discuss the less obvious implications. While a contingent model transfers risk from the company to a 3rd party, there are three non-obvious negative implications. First, the recruiting company retains information on all candidates that have been pre-qualified for role except the select few that are introduced to the firm. Second, all outreach under a contingent model is masked, i.e. only those that speak directly with the recruiting firm ever even learn of the hiring company’s name. Third, outreach from agencies tends to be both boring and repetitive when there is a more limited well of content from which to draw.
While a contingent model transfers risk from the company to a 3rd party, there are three non-obvious negative implications. First, the recruiting company retains information on all candidates that have been pre-qualified for role except the select few that are introduced to the firm. Second, all outreach under a contingent model is masked, i.e. only those that speak directly with the recruiting firm ever even learn of the hiring company’s name. Third, outreach from agencies tends to be both boring and repetitive when there is a more limited well of content from which to draw.
So why are these factors a big deal? Well, for companies with a short-term orientation making one-off hires, they may not be. However, organizations with a longer-term perspective should be eager to retain data on all relevant candidates for future hiring needs and should want to put their brand and ideas—not just masked open roles—in front of those pre-qualified candidates. Companies that retain data and engage qualified candidates over time create a virtuous inbound marketing funnel for candidate acquisition. If your organization hires employees with similar characteristics over time, you should be steadily warming candidates that fit that mold. When you’re making the next hire, those individuals may very well come to you, rather than you-to-them.
To be clear, we are not saying that there isn’t a role for 3rd party recruiters in the hiring ecosystem. Many of the benefits outlined above – e.g. flexing up and down in response to changing hiring needs – remain in place with hiring agencies, regardless of the incentive structure. Rather, if companies are going to use 3rd parties, those partners should be incented to share data on pre-qualified candidates and effectively promote the company’s brand as part of candidate outreach.
Smart recruiting agencies will accept the trade-off of lower total fees per hire for a bit more certainty. The agency’s job also becomes easier when they can lead with ideas and leverage the hiring company’s brand, particularly if it has some brand equity. Smart hiring organizations will realize that – irrespective of the outcome of any one search – the recruiting efforts have resulted in nurturing their brands to qualified candidates, allowing greater opportunities for the continuous engagement of those qualified candidates over time.
While a hiring organization’s use of agency recruiters can be like opioids to a pain patient (OK, maybe that’s too far), there is a more collaborative model on which more talent acquisition partnerships should be built. Our view is that the best partners will “recruit like a marketing agency,” using a multi-channel approach that highlights a hiring company’s culture, history, and differentiators. Let’s talk if you have hiring responsibilities at your organization OR are at a recruiting agency and would like to learn more about this approach in practice.