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RNA Episode 2
387 Plays1 year ago
Episode 2
In this Adele & Ross cover all the local Australia recruitment news and an important question. Click to listen.
Question of the Week: What is a fair commission structure?
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Transcript
Origin of Recruitment News Australia
00:00:07
Speaker
Welcome to Recruitment News Australia. Let's tell the people how Recruitment News Australia came to be.
00:00:20
Speaker
Well it was an idea Ross that we came together with at the RCSA conference in Hobart last year over a coffee in one of the breakout sessions we came up with the idea of providing a central news source of information for the industry.
Podcast Goals and Community Building
00:00:35
Speaker
So what we'll be doing each week is curating sources of different news from across our industry in Australia and overseas and providing all that information in one location for you on this podcast.
00:00:47
Speaker
We'll also be addressing common issues and relevant content to the industry and in our hopes creating a bit of a community and a learning platform for our listeners.
Industry Insights from Ross and Adele
00:00:58
Speaker
In case you don't know who we are, firstly, my name is Ross Clennet. I started my recruitment career in 1989 as a permanent accounting recruiter in London. I worked for four different agencies across a 14-year period. I started my training and coaching business in 2004.
00:01:17
Speaker
I've been publishing a weekly newsletter and blog since 2007. And my name's Adele Lust. I've been working 26 years in the recruitment sector for a range of small private and larger publicly listed recruitment agencies. I worked as a GM and managed recruitment businesses before starting my own company three years ago involved in creating a pathways program, including training for new recruiters coming into our industry.
Atlassian Workforce Reductions
00:01:53
Speaker
Last week, Atlassian announced it would reduce 5% of its global workforce, which will hit their talent acquisition team directly. Atlassian co-founders Scott Farquhar and Mike Cannon-Brooks wrote in their Founders March update. While many teams across Atlassian are impacted, some of our most impacted teams include talent acquisition, program management, and research and insights.
00:02:18
Speaker
Prioritising the most critical work for our current and future customers by reducing our investment in specific areas in order to reinvest in others was given as the primary reason for the decision to sack 500 employees.
Financial Performance of Ashley Services
00:02:33
Speaker
Departing employees will receive a severance package that includes 15 weeks pay plus an extra week for each year of service, six months of healthcare coverage, outplacement support and permission to keep their company laptop.
00:02:48
Speaker
ASX listed labour hire and training firm Ashley Services reported revenue for the six month period, ended 31 December 2022 of $262 million, an increase of 19.4% compared to the previous year.
LiveHire's Financial Report and Market Impact
00:03:03
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EBITDA rose 11% to 10.3 million and net profit after tax rose 4% to $6.1 million.
00:03:13
Speaker
Direct sourcing platform LiveHire reported revenue of $4.4 million for the half year ended 31 December 2022, an increase of 18% over the prior corresponding period. The loss before tax was $7.1 million for the half year.
00:03:30
Speaker
Global search firm Heinrich & Struggles reported net revenue for the December 2022 quarter fell 14.6% year over year on a constant currency basis to reach US$235.7 million. The Asia Pacific region recorded a 9.6% revenue decline.
00:03:51
Speaker
However, the firm's net revenue increased 10.1% in constant currency in its full fiscal year of 2022 to reach a record US$1.07 billion compared to US$1 billion in the previous fiscal year 2021.
Gender Disparity in U.S. Staffing Leadership
00:04:10
Speaker
Women comprise the majority of internal workers at staffing firms in the United States, but they are still underrepresented at the executive, CEO and board levels, according to the insights on gender parity in the US staffing industry report. Of staffing firms surveyed, women represented a median 66% of internal staff. However, they represented only a median 50% of executive team members and a median 37% of board members.
00:04:40
Speaker
It also found that women account for a substantial share of CEO ownership at small staffing firms by representation lags at mid-size and large staffing firms. In small firms, 53% of CEOs were women. That number went down to 45% among mid-size firms and went down even further to 18% at large staffing firms with revenue of more than $100 million.
Australia's Recruitment Challenges and Job Market
00:05:08
Speaker
According to the Internet Vacancy Index based on the monthly average number of jobs advertised by occupation, the most in-demand jobs in Australia in the December 2022 quarter were first, registered nurse, second, software and applications programmers, third, aged and disability carers, fourth, child carers, fifth, construction managers, sixth, motor mechanics, seventh, retail managers, eighth, chefs, ninth, GPs,
00:05:37
Speaker
and in 10th place metal fitters and machinists. The proportion of recruiting employers who experienced difficulty with their most recent vacancy reached a new record in the December 2022 quarter. Non-capital city employers reported a slightly higher rate, 69% of recruitment difficulty, compared to capital city employers of 68%.
00:06:02
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12 months ago, the equivalent rate for both sets of employers was around 15 percentage points lower. According to the Internet Vacancy Index in seasonally adjusted terms, job advertisements in Australia increased by 0.8% or 2300 job advertisements in February to standard 281,200 vacancies.
00:06:25
Speaker
Over the 12 month period, February 2022 to February 2023, the IVI rose 5,400 ads or 2%. Research from staffing industry analysts found 47% of internal staff at staffing firms work remotely and an additional 26% work remotely at least part of the time. Only 27% or just over a quarter of internal staff at staffing firms
00:06:53
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work entirely in the office.
Fair Commission Structures
00:07:01
Speaker
Okay, our question of the week this week, Ross, is about commissions, one that I know a lot of people talk about in our industry. And the question is, what is a fair commission structure? And if we talk about, I guess, the most common structure in the industry is one that was popularized by Morgan & Banks back in the day, and it's probably still used by a lot of agencies
00:07:24
Speaker
which is the three times base salary makes your threshold and 33% paid above the threshold for permanent recruiters and four times the salary and 25% paid above threshold for temp recruiters. What do you think? Is it still valid? I think in the mortgage bank stays, there were many fewer support resources supplied by employers.
00:07:52
Speaker
So the reality was the consultants did the work, by and large, to bring in the clients and the jobs and to bring in the candidates. Whereas in this day and age, there's a lot of additional support resources. I mean, clearly payroll has been a constant, but now you've got larger marketing departments that includes people who are writing blogs and producing
00:08:20
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videos, you've got dedicated business development departments that are bringing in PSAs. So I think all of those additional resources need to be factored in when you're paying commissions or constructing a commission scheme for consultants.
00:08:38
Speaker
So maybe that threshold of three times salary doesn't work anymore. As you said, there's lots of other factors to include in here and maybe it needs to be more precise and transparent as to exactly what does it cost to employ a recruiter with the additional support and how do they cover those costs before that threshold is defined and commission is paid.
00:09:02
Speaker
Yeah. So, I mean, in simple terms, above average performance back in the day was probably once you produced three times the multiple of your salary. Whereas with all those additional resources, is it more for a perm recruiter three and a half or 3.75 or even four? I think that's probably where you need to be.
00:09:28
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mindful in defining what is above average performance for the individual recruiter, given the resources that are supplied to them. And like we've always said, I suppose, across the industry, anybody that that has designed commission structures would say to keep it simple, of course, simple is best. You want something that the employee themselves can track
00:09:52
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and calculate so that it is motivating so that they can understand really clearly and simply what sort of money they're likely to earn in any given month or quarter or period. So you've got to find something that is simple for the business for people to be able to understand and calculate themselves. Yeah, look, I certainly agree. And I don't know whether this is still the case, but certainly
00:10:17
Speaker
A few years ago, the highest model was that people, consultants, received 10% of all that they built. So there was no threshold. I don't know whether that's still the case, but that is a very good example of what you say with respect to simplicity, because clearly it's a pretty easy thing to do. If you build 70K, then your base salary is whatever, and then you're going to get 7,000 on top of that.
00:10:46
Speaker
You don't have to think about a deficit and the deficit is where you get issues and where you get controversies. And just for those of you who are not familiar with a deficit, that's simply what you, the difference between your threshold and what you build. So for example, if your threshold is 60K for a quarter and you build 50, then you're in deficit 10,000.
00:11:14
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And so the model, as it's traditionally been known, that 10K is added on to your threshold for the next quarter. So instead of being 60, it becomes 70 and you have to bill above 70 to actually then receive your commission. And clearly that's been a, I think, relatively common part of our industry. But with the market being as strong as it's been the last couple of years, it seems to have fallen out of favor of it.
00:11:43
Speaker
And it's interesting because that could start to become the beginning of the end, really. I mean, as you said, you start off the next quarter with an even higher target coming off a quarter you couldn't achieve. So where does it start to, you know, it starts to probably snowball from that point.
00:12:00
Speaker
and potentially will show signs of a greater issue around the salary that you are paying that person and their performance and their ability to catch that threshold but it could start to, as I said, be the beginning of the end into the next quarter because they may never achieve that one and then of course the deficit carries forward again and again. Look, potentially, I mean that's a performance management issue in my eyes but the
00:12:23
Speaker
You know, the problem I have when you don't have a deficit is that if a consultant is short of their threshold and it's the last week of the quarter and they've got a placement that potentially they could put through in that last week and it won't get them above the threshold, there's no incentive for them to put it through. They're going to wait until the Monday of the following week because then it's going to count, whereas it's not going to count
00:12:52
Speaker
in that month. So, you know, these are the things. You're not suggesting recruiters hold back placements. I'm sure it's been done occasionally, Adele. But that, you know, again, you've got to be mindful of the behaviours you're creating an incentive for in any commission scheme. So what's our closing advice on this question of the week? The question is, are current commission structures still fair?
00:13:21
Speaker
Well, I suppose a simple way of looking at it for an owner would be look at what you've paid each of your employees for the last 12 months, and then look at what they've billed across the last 12 months. Does what you are paying them reflect above average performance given what they've billed
00:13:50
Speaker
and the value of the work, because that's going to be a pretty good benchmark. There's no point changing things if what you're doing in the moment is broadly working. But I think where the problems occur is that people are being overpaid. Certainly, in my view, people are being paid for
00:14:17
Speaker
average performance at an above average level. And if you compare someone's remuneration with their total billings and what you believe to be their value, that's a pretty good starting point. Hmm. I can sum it up in three words really clearly. Keep it simple. Make sure that it's transparent. Make sure people are able to understand it and make it consistent. Yep. Can't go too far wrong there Adil. That's a wrap for this week's Recruitment News Australia.
00:14:48
Speaker
Thanks for listening and we hope you'll join us again next Tuesday.