Many recruiters have an inflated sense of what they should be paid, because their managers are not communicating with them clearly about the real costs of running a recruitment company, says recruitment industry remuneration specialist Chris Hart.

Hart, whose HR and management advisory company Hart Consulting carries out regular salary surveys for the RCSA, said that most incentive programs currently operating in the recruitment industry were "myopic".

"They have platitudes to service... but at the end of the day 99% of them are based around: 'Did you generate a certain level of fees?'"

One obvious problem with this, he said, was that a person who was handed their work on a plate might earn the same commission as someone who had no pipeline provided to them and instead went out and found new business themselves.

Hart said the relentless focus on fees also meant that managers often faced questions from recruiters who looked at what they had billed in a year and wanted to know why they weren't getting a bigger cut.

"The reality is that there isn't sufficient transparency by the organisation to show to the consultant that they are being fairly rewarded, that their pay is market competitive and that in fact: 'We can't afford to pay any more, because this is how much money we make.'"

He said recruitment company owners and managers should explain to their staff that there were more costs involved in generating their fees than they were aware of.

These included office rent, IT, maintenance, the database, broadband and telco costs, advertising, power, the support staff, HR and finance, workers' comp, payroll tax, superannuation, insurances, travel expenses and all their other corporate overheads. Managers needed to demonstrate how these had to be debited from the various profit centres of the business, he said.

"Of course, there's paranoia in the recruitment industry that if you tell them all this they'll take the information and go to someone else, or set up in competition with you. Well, they go off and do that anyway.

"So you might as well try to highlight to them the complexity of running their own business, and then they may realise they're not ready for that task and maybe they'll stay with your organisation."

Profit-sharing can work

Hart said profit-sharing was a useful and transparent way to structure remuneration which wasn't widely used in the recruitment sector.

Profit-sharing worked well for two groups, he said, the first being team leaders.

Typically a team leader was paid commission based on fees, just the same as a consultant - which put them in the position of having to decide whether to focus on their own billings, or on the wellbeing of the overall team.

Instead, he said, they should be rewarded with a percentage of their team's profit.

"They are a team leader and they should be managing the team - therefore they should be measured on the team's success, and that is not driven by revenues, but by profitability."

Hart said the second situation in which profit-sharing was appropriate was in SME recruitment businesses where the consultants and managers worked closely together and performed interchangeable roles depending on who was available.

"That occurs in a lot of smaller operations. They'll swap over and do all sorts of different things. If you're going to do that, then it's just silly to then start talking about who's got what commission on what project. 'Did you get two thirds of it and therefore someone else gets a third?' It's all too complicated.

"So you turn around and say simply: We as a group must reach a revenue target, or we as a group must be profitable."

Hart stressed that he wasn't saying every member of such a team should receive the same amount of cash. Instead it should be at the discretion of management as to what proportion of profits each employee received.

He said a reasonable model for a small business was to set aside between 40% to 50% of gross profit for the total wages bill.

"We would be saying it should be closer to 40%, because surely we are trying to generate a profit and not just simply pay all our monies out to the staff."