SIX OTHER PLACEMENT FEE OPTIONS AND WHEN TO PROPOSE THEM
If all you talk about is that tired old “one percent per thousand” contingency fee, you’re talking yourself out of placements.
Search fees have always been negotiable. While some placers negotiated downward from their “standard” fee, others were quietly looking for more creative ways to get paid. They proposed them. And they were accepted, giving these quiet, creative competitors the inside track.
Now you can propose the options successfully too:
1. FIRM FIXED FEE CONTRACT
This is sometimes called a “retainer,” but it’s not. A firm fixed fee contract merely provides for payment of a specific amount for filling a particular job. Of course, multiple amounts can be paid simultaneously for a series of openings. It’s fixed because there are no additional charges, and it’s firm because there are no changes.
Firm fixed fee contracts are generally paid on an installment basis, and generally in three installments: upon commencement of the search, and at 30 and 60 days. Costs are not itemized or paid separately. They’re factored into the fee.
A survey conducted by one magazine revealed that fixed price consultants make 87% more than those who work on a time basis (hourly, daily, etc.). While no comparison was made to contingency-fee’ers (real management consultants rarely work on this basis), a fixed fee is definitely preferable to a contingency one.
This is because the employer is truly a “client,” and has paid “earnest money” (“front money”) to hire. There’s a commitment in the relationship that rarely exists in contingency work. The loss in search flexibility isn’t that great, since only a small number of searches are on a fixed-fee basis.
The problem with firm fixed fee contracts is that the installment payments can too easily be interpreted as progress payments. Employers purposely don’t clarify this, and recruiters too often fear mentioning it. This fear is known as “feephobia.” For advice on how to overcome it, read Chapter 4 in The National Placement Law Center Fee Collection Guide, entitled “Feephobia: Behavioral Modification to Get You Paid.” (www.searchresearchinstitute.com)
Progress payments are like those a building contractor gets as the work progresses. No “progress,” no payment. Legally the right to payment is conditional – not absolute. In the search business, “progress” is useless. Time and effort don’t mean a thing. Leads, résumés, send-outs, and even offers don’t mean a thing.
Progress means a placement – an accepted offer from someone who actually starts.
So trying to enforce payment of the remaining installments (and not defending a cross-complaint for return of those paid) depends on words like this:
It is agreed and understood by (name of your business) and (name of employer) that the installment payments herein are merely partial payments of the search fee herein, and do not depend upon performance by (name of your business). They are due and payable at the specified times regardless of the progress of the search or the satisfaction of (name of employer) with said progress.
Note that we don’t call the fee a “placement fee.” If you do, the employer will argue that it “reasonably believed” you were entitled to be paid only if you placed someone. Call it a “consulting fee” and the employer will show that you didn’t consult. Call it a “retainer” and you’ll be recruiting until you retire or refund.
“Search fee” (implying effort, not results) or even “fee” is fine.
2. VARIABLE FIXED FEE CONTRACT
Variable fixed fees are similar to firm ones, except that the last payment is adjusted according to some predetermined formula. It’s usually a percentage of the candidate’s annual starting compensation. Whether it equals a full fee pursuant to the contingency fee schedule depends largely on the negotiating skill of the recruiter.
Since they’re optimistic by nature (and also oversell by nature), most recruiters don’t cover the two major issues that arise.
They are:
a. The adjustable payment implies that a placement must occur.
Otherwise, why not simply pay a fixed fee for the search activity itself?
b. By implication, the adjustable payment does not become due unless a placement occurs.
Even if a court were to find that no placement was required for the recruiter to retain the payments already made, the final one “adjusts” to “0.”
As just mentioned with regard to firm fixed fees, you need to protect yourself against both of these arguments.
Here are suggested words:
(Name of employer) agrees that in the event the final installment of the fee becomes due and no placement has occurred, the amount of $ ____ shall be paid to (name of your business). Upon receipt of said payment, the search effort shall continue by (name of your business) for a period of 30 days unless otherwise agreed by the parties in writing. (Name of your business) shall have no obligation to (name of employer) to actually place someone with it to retain the entire fee herein.
3. TIME INCENTIVE FIXED FEE CONTRACT
If you’re dealing with a highly motivated employer, you can both benefit from an incentive contract. There are two ways the time incentive can work:
a. The employer receives a reduction by hiring someone within a certain period.
This is a great marketing device that is effective in almost every fixed-fee agreement. The two primary reasons recruiters don’t use discount incentives are:
i. They think the employer will hire quickly anyway.
They’re wrong. Employers never hire quickly enough.
ii. They think the employer won’t hire quickly anyway.
They’re wrong here too. Make the hirer a hero and they’ll help.
The words are simple enough:
a(Name of employer) shall receive a reduction of __%/$____ if a candidate referred by (name of your business) accepts employment within___ days from the date of this Agreement. The reduced search fee shall be due and payable in full upon the candidate reporting for work.
b. The recruiter receives a bonus by placing someone within a certain period.
If the opening is really “hot,” the employer won’t mind. It also won’t stall to obtain a lower fee. Unfortunately, few fee openings are hot enough to justify a search surcharge.
Here the words are:
(Name of employer) shall pay a bonus of __%/$____ to (name of your business) if a candidate referred by it accepts employment within ___ days from the date of this Agreement. Said bonus shall be due and payable in full in addition to the search fee upon the candidate reporting for work.
4. TARGET CANDIDATE BONUS FIXED FEE CONTRACT
Occasionally an employer identifies certain individuals it prefers to hire. Unlike a time incentive bonus, a target candidate bonus is paid to the “roto-rooter recruiter.”
Here’s the way the words usually read:
If (name of your business) arranges an interview for any of the following individuals and (name of employer) hires them within three months from the date of said interview, a bonus of __%/$____ shall be paid to (name of your business):
(name of first individual)
(name of second individual)
(name of third individual)
Said bonus shall be due and payable in full in addition to the search fee upon the candidate reporting for work.
It’s imperative to have specific candidates listed, and don’t let the employer talk you out of it. Invariably, these are high-profile prospects often featured in business publications, active in trade associations, or personally known by the employer’s management.
A roto-rooter recruiter can work awfully hard only to have the employer say he was “just passin’ through.”
If the hirer tells you he doesn’t want to have the target candidates revealed in the agreement, ask for a confidential letter. It should reference the bonus and the names.
Occasionally, target candidate contracts are executed. But usually they’re in the form of a bonus during a thorough search.
5. HOURLY FEE CONTRACT
As every lawyer knows, hourly rates are a difficult way to earn a living.
Employers negotiate the rate as though it means something. Few consider that one recruiter works faster than another. Or better, since they’ll never know the candidates that weren’t recruited. And almost none really understand that it’s all “funny money” anyway, since the recruiter is keeping track of the time. No matter how scrupulously this is done, there are always judgments about how much time to bill.
Starting out a relationship so subjectively starts you out defensively. Every billable minute will eventually need to be justified. For this reason, hourly rates should only work against the full (preferably fixed) fee.
Take your average search time for the type of job (53 hours for upper management jobs, according to Search Research Institute) and divide it by your average full fee for it. That will give you an idea of the hourly rate to charge. Then negotiate your best deal.
The words to use are:
(Name of employer) shall pay (name of your business) $_____ per hour for time expended in performing the search. (Name of your business) shall submit an itemized statement of said time on or before the first day of each month immediately following it. (Name of employer) shall pay (name of your business) in full within 10 days of receipt of said statement. All hourly fees charged shall be deducted from the search fee of $_____.
Of course, the full fee should be structured so it isn’t conditioned upon a placement (see Item 1). It’s a good idea to show the credit toward the full fee on each statement, too. That way, when the hiring authority changes his mind (or just changes), your lawyer will take your case on a contingency-fee basis.
If not, call (310) 559-6000 and ask for a referral to one who will.
6. COST PLUS FIXED FEE CONTRACT
Regardless of the type of fixed fee contract, reimbursement for actual costs may be included. Since “CPFF” contracts are common in many industries, you may be able to negotiate your costs in addition to the fixed fee more readily in them. The 15 usual cost items are:
a. Telephone
b. Facsimile
c. Postage
d. Express Mail
e. Photocopy
f. Résumé Preparation
g. Special Status Reports
h. Meals
i. Entertainment
j. Travel
k. Lodging
l. Advertising
m. Special Publication Purchases or Subscriptions
n. Industry Association Memberships
o. Special Project Fees (Surveys, etc.)
Cost reimbursement can be wonderful or worrisome, depending on these factors:
a. Relationship with the employer
b. Difficulty of the search
c. Necessity for the expenses
d. Extraordinary nature of the expenses
e. Ease of prior approval of expenses (if any)
f. Reporting requirements to justify the expenses
Overall, the rule is not to even attempt reimbursement unless the expenses are extraordinary. There are few searches that justify non-routine calls, faxes, meals, entertainment, travel, or lodging. Any expense reimbursement can never compensate you for the loss of desk time involved.
But if you must, here are words:
(Name of employer) shall reimburse (name of your business) for actual (telephone, facsimile, meal, etc.) expenses incurred in performing the search. (Name of your business) shall submit an itemized statement of said expenses on or before the first day of each month immediately following their payment. (Name of employer) shall either reimburse (name of your business) or notify (name of your business) of the reason for not doing so in writing within 10 days from receipt of said statement.
There you have it. The options that can have you placing and billing like your quiet competitors.
For more on this subject, read Chapters 105 and 107 in Placement Management, entitled “Fee Negotiation” and “Cheaper by the Dozen: Volume Fee Discounting.”
Then pick up a copy of The Contract and Fee-Setting Guide for Consultants & Professionals, by Howard Shenson. It is available from your bookstore or the publisher.
Jeffrey G. Allen, JD, CPC, turned a decade of recruiting and human resources management into the legal specialty of placement law. For over 32 years, Jeff has collected more placement fees, litigated more trade-secrets cases, and assisted more search and placement practitioners than anyone else. From individuals to multinational corporations in every phase of staffing, his name is synonymous with competent legal representation. Jeff holds four certifications in placement and is the author of many best-selling books in the career field. He can be reached at Law Offices of Jeffrey G. Allen, 10401 Venice Blvd., Suite 106, Los Angeles, CA 90034; (310) 559-6000; jeff@placementlaw.com. The Placement Strategy Handbook and other books on search and placement can be purchased at www.searchresearchinstitute.com.