Thanks, and stay tuned!

–Adam

If you’re anything at all like most people, you’ve taken at least a few moments to think about your resolutions for the new year.  Maybe you’re going to finally use that gym membership you’ve been paying $79.95 a month for (for the past three years), or perhaps you’ve resolved to stop buying Cheez-Its (hard to pull off!).  If you’ve stuck to it thus far, congratulations, you’re a better resolver than I.

Here at Better Hiring Today, we’re concerned with making better hiring decisions, and, as such, our New Year’s resolutions tend to run in the recruiting vein.  Why not add a few recruiting goals to your list?  It’ll be a lot easier than giving up beer.

Repeat after me:  “I, [state your name], hereby resolve to…

“…Use social networking to promote my company to prospective employees.”  You’re probably as confused about how to use Twitter and Facebook as the rest of the world.  It’s ok.  But you know what?  These tools work wonders for passive candidate recruiting.  And they’re free, for cryin’ out loud.  Embrace them.  Learn how they can work for your company. 

…Use a standardized selection process for making my hiring decisions.”  What, flipping a coin isn’t cutting it for you?  Stop winging it and make the move to a standardized process.  There are many systems available, including the one I developed (The Ionix Hiring System - available here).  Do your company, yourself and your fellow managers a favor and help them pick the right person for the job.

…Say no to mediocre candidates.”  Just because you have an urgent job opening that needs to be filled doesn’t mean that any decent-looking candidate with a pulse and a smile should be hired.  Be patient.  Wait for that right candidate.

…Plan ahead for my hiring needs.”  This just in:  2009 was a tough year for business.  You’ve probably cut staff, reduced or frozen hiring, and shelved that recruiting initiative that, in 2007, looked like a must-do project.  Most leading economic indicators are pointing a Q3 2010 employment rebound, which means you have 4-6 months to get your plan in place.  Start now!  Don’t go back to crisis mode circa 2006.

…Hug a recruiter.”  Ok, that one was for me.  Recruiters need love, too.

Here’s a prosperous 2010!

Manager interviews “superstar” salesperson and feels relieved that this prayers have been answered.  Superstar candidate negotiates a base salary and draw that’s way out of the comfort zone of the manager, but, hey, she’s going to be worth every penny.  One month into the relationship, nothing much happens.  Three months into the relationship, the manager starts to worry because the former superstar doesn’t seem to be catching on.  Six months in, still no sales.  Twelve months and six figures later, the manager pulls the plug.  They’re stuck with unemployment liability and COBRA administration for the next 18 months…worse off than before, and beginning to wonder if they’ll ever get this sales hiring thing right.

How did this happen?  Relax, it happens to everyone.  If this horror movie keeps repeating itself in your company, it’s time to look at the facts.  As I’ve mentioned before, a superstar salesperson at one firm has a 50% chance of being a bust at their next firm.  Why?  Because it takes more than raw talent to succeed in sales.  It takes great marketing, good management, and solid financial footing to faciliate strong pipeline development and close rates.  In other words, it takes a support system.

There may be other factors at play.  Sometimes, people just aren’t as hungry as they used to be.  Or their family situation causes stress and leads to poor performance.  Or, aliens abduct them and replace them with a B-player stunt double.  Whatever the case, hiring a former superstar guarantees nothing, but holds high potential. 

What do I do about it?  One option to consider is a “temp-to-perm” trial period.  Instead of hiring that new salesperson directly to your payroll  and absorbing all of the risk, what many forward-thinking firms are trying is a contract relationship for a set period of time (typically, 6 months).  The thinking goes like this:  “If someone isn’t going to work out, I’ll know in six months.  So, I’ll just put this new resource on an at-will employment contract through a 3rd party staffing firm and try before I buy.  If the resource works out sooner, I hire sooner.  If they miss expectations sooner, I terminate the relationship without the hassle and headache.”

If you haven’t considered this option, it’s time to think about it.  That is, unless you want to see that same movie again.

It’s long been held that when staffing companies do well, permanent hiring follows 3-6 months later.  I’m currently seeing a significant pickup in staffing needs at large  and mid cap companies, both of whom have slashed payrolls to the bone and held off on just about every expenditure since late 2008.  This ASA index reading validates the anecdotal evidence that’s showing up everywhere right now.

The question for you is, “Am I prepared for the rebound?”  We’ll discuss that one next week.

Editor’s note:  A special thanks to my readers as I took a hiatus from posting in August.  We’re back in the saddle for what promises to be a much better 2nd half!  Stay tuned!

The solution?  Hiring contractors.

Last week, I met with a large consumer products company to discuss their workforce plan for the next 12 months.  In that meeting, their stated workforce strategy was to keep full-time hiring on hold, and to pursue hiring contractors for all roles, with the aim to convert them to full time employees within the next 6 months.  That’s a significant change from their previous strategy, and, since most other large firms with whom I speak seem to be following a similar path, the implications for the workforce are several.

First, contract-based work “moves faster.”  Instead of having to wait for cumbersome internal HR processes to produce a hireable employee, contract firms blitz the company with people who can literally begin work tomorrow.  When the demand shift to  contract-based workers, hiring cycles accelerate, which bodes well for reducing unemployment rolls.

Second, most contract assignments carry with them zero benefits like health insurance, vacation time, or a 401(k) plan.  While getting back to work is good, the shift to a contract-based workforce doesn’t much help our national problems of too-little retirement savings and high levels of uninsured workers.

Finally, any increase in demand for contractors will drive employment in the recruitment industry.  Contractors aren’t hired by HR representatives, they’re hired by professional recruiters who work for staffing companies.  Along with this recently observed uptick in contractor demand, I’m also seeing requests for full-time recruiters climbing steadily at the large staffing shops.

Staffing industry pros know that an increase in demand for contractors means that full-time employment will pick up in the next 4-6 months.  When that happens, we’ll see the unemployment numbers (a lagging indicator) begin to decline by mid-2010.

Is your company hiring contractors in lieu of full time employees?  Sound off in the comments section.

Almost half (46%) of all information technology organizations plan to cut headcount this year, according to a survey of 200 IT executives released on Monday by Computer Economics, an Irvine CA-based IT metrics and advisory firm.
Twenty-seven percent of IT executives plan to add staff this year, and another 27% plan to keep their staffing levels the same.

The study also found the use of temporary IT workers remains unchanged from the previous year. The study found that the typical IT organization relies on contract workers for 5% of its full-time equivalent headcount.

The numbers in IT hiring are driven largely by the amount of capital expendure on IT-related projects that take place at large corporations.  Lots of projects means lots of IT staff required.  With capital expenditure on IT down nearly 38% this year, we can all see why staff levels are being cut.  These staffing and cap ex statistics are highly correlated.

When will IT hiring return?  Most of my contacts in the industry are placing their bets on Q2 2010.  Watch the earnings reports of the large national staffing firms like Manpower, Adecco, and Volt, paying keen attention to their top-line numbers.  A drop in revenues at the larget national staffing companies signalled recession in 2008 about 4 months before the other signals started shouting “look out!”  The same will be true on the way back up.

Just twelve months ago, companies were scrambling to find people for skilled positions in sales, IT, and finance.  Companies find themselves fishing in a much deeper pond these days, and I am increasingly hearing that the the problem is now no longer how to find great candidates, but how in the world to whittle that stack of 500 resumes down to the 3-5 people you actually want to spend time interviewing.

Where previously clients were hiring us to go out into the field and “pull” candidates into the hiring process, now they’re calling us to help process inbound applications because the sheer volume is overwhelming.  I’m seeing ten times the applications per job than was the case in 2007.  And, since most companies have scaled way back on internal HR staff, the “too many candidates” problem is amplified.

With unemployment figures estimated to top 10% in early 2010, I don’t see any end in sight to this massive shift from “I can’t find anyone” to “I can’t see over this pile of candidate resumes.”  3rd party recruiting providers who can’t adjust to that reality are in for an extremely painful year.  And do-it-yourself Managers who don’t get help are going to end up making bad hiring choices.

Candidate frustration is on the rise, as well.  The influx of resumes is overwhelming most internal HR organizations, and candidates simply never hear back from the companies to which they’ve applied.  The easiest way to soil your name amongst top candidates is to have a poor candidate response mechanism in place.  More and more I speak with people who tell me that it’s not uncommon for them to send our a hundred resumes before they get even one “thanks, but no thanks” letter.  They’re not even getting a formal “no.”  That’s atrocious customer service.

Bottom line:  if you’re inundated with resumes, seek help.  Your dream candidate just gave up trying to apply to your open job and is now working for a competitor.

Here’s what you need to know:

Fact:  40% if the US workforce will be made up of independent contractors or contract-based labor by 2019, up from 26% today. (source: EPIC-MRA; Kelly Services)

Why:  Older workers have seen their retirement accounts decimated by losses in the equities markets over the past 24 months, and they’ll need to work more years to make that magic nest egg number.  Corporations haven’t done a very good job with succession planning, and they’ve been running so lean these past 2 years that middle management bench strength is nowhere near adequate.  Additionally, many companies are shifting to a “get the labor that we need, when we need it” mentality, which is another way to say, “we’ll hire contractors on a per-project basis.”

What it Means:  Ten years ago, it was unheard of to seriously look at a resume of a potential hire that had more than 3 positions in a five year period.  Ten years from now, you’ll be seeing more and more candidates who have experience across multiple companies while working as a contractor.  You won’t be able to dismiss candidates out of hand just because they appear to have short job stints.  In the future, compressed job stints will be almost half of our nation’s employment.

Fact:  In 2010, 28% of the US workforce will telecommute either part time or full time, up from 12% just ten years ago. (source:  Gartner Dataquest)

Why:  Companies are getting wise to the fact that telecommuting saves a ton of money…as much as 30% less per employee once you factor in savings with office rent, technology infrastructure, and other administrative overhead.  And as corporate globalization continues to trend higher, project teams will become accustomed to having multiple disparate members located not just in multiple locations, but in multiple time zones.

What it Means:  The notion of waking up in the morning and spending two hours driving to and from a desk – when you could do the same job, more productively, from a desk in your home – is going to make less and less sense to knowledge working in the economy of tomorrow.  And it should make less and less sense to employers, as well, when they realize that employees typically replace those 2 hours of commuting time with 1.5 hours of productive work time, without working less hours overall.

Fact:  80% of employees want flexibility in their work arrangement provided it doesn’t harm their careers. (source:  Georgetown University Law Center)

Why:  As Gen X (those born 1965 – 1978) takes the management reigns from the Boomer generation, they bring with them a less structured view of the workplace.  As managers, they’re less concerned with having people show up to a central work location every day.  As employees, they’re accustomed to more flexibility in their employment arrangements.  Attitudes about what constitutes “an office job” are radically different from the previous generation.  Factor in Gen Y (born 1979-2000) and their propensity for “me first” work-life balance, and you’ve got some real change on your hands.

What it Means:  Managers and companies will be required to rethink their view of employment, with the biggest change being the belief that people are after the top dollar possible.  To the contrary, the research has shown that Gen X and Gen Y workers place a higher value on work flexibility than they do on salary or bonus.  So, before you run off and throw money at that next crop of top-performing college seniors, consider that sabbaticals, time off for charitable pursuits, and generous flex time policies are all more effective – and cheaper – when the goal is attracting and retaining talent.

Few would argue that the US will emerge from this economic downturn without permanent changes to the way corporations plan for and manage employees.  Make sure you’re on the front end of these huge changes in the way we work.  You’ll be ahead of the game.

After all the time and effort expended to locate, hire, and train top producers, why in the world do most companies do things that make their top salespeople quit?  In my opinion, companies don’t pay attention to the basic drivers/motivators for top producers.  If your company has a hard time holding on to salespeople, it’s probably for one of the following reasons:

• You’ve changed their compensation structure.  And not for the better.  The #1 cause of a disgruntled top producer is negative modifications to their compensation structure.  With salespeople, the comp plan is a sacred covenant - everyone agrees that these are the rules.  Top producers inevitably knock the ball out of the park, and management says, “Uh-oh.  These guys are making too much money.”  So they change the comp plan.  The usual suspects are caps on commissions (ludicrous), reducing overall commission payouts (kills trust faster than anything), and taking away clients to give to other salespeople (all that hard work, stolen away).  Please, don’t do this stuff.
• They have an unhealthy relationship with their manager.  This usually happens when the top producer’s previous boss - who was awesome - gets promoted and is replace by a less-than-awesome boss who feels like they have to prove their worth by tinkering with everything that was working.  I call this, “New Boss Syndrome.”  It goes something like this:  (1) New boss enters the picture, (2) new boss fails to take the time to build relationships with the top producers, (3) new boss says or does something to piss the top producers off, (4) new boss’ involvement actually starts to hinder the top producers’ ability to produce (read:  mandatory attendance at excessive and pointless “sales meetings”), (5) top producer starts accepting headhunter phone calls, (6) they leave. 
• You’ve increased their risk.  This risk may be caused by poor company financial performance, a merger or buyout, or an overall macro decline in the size of the market for the product or service that they’re selling.  This one’s a bit more difficult to counter, and I mention it only because you need to pay twice the attention to top producers when a broad-based decline hits your industry.  They begin to consider that move to Career X that they’ve always dreamed about.

These things are what headhunters are trained to watch for when calling your salespeople.  If they perceive that one of the above is going on, they’ll zero in on your top producers like a missile.

The truth about top producers is that if their ego is sufficiently stroked, if they are fed with good marketing support, if their comp plan is solid, and if you get the heck out of their way, then they’ll be happily making your company money for as long as things stay rosy.  If, however, you’d like to make you top salesperson quit and go work for a competitor, you’ve been taught how to do so.

The list, in no particular order:

• “The rep is a hunter, not a farmer. ” And not even a combination of the two, as many would suggest as a good fall-back plan if a pure hunter cannot be found.
• “The rep isn’t afraid of the phone.”  In fact, the rep loves the phone.  They use it as the business tool that it is.
• “The rep didn’t necessarily have financial experience when they joined.” But they had a track record of delivering above-quote sales numbers in a hunter role.
• “The rep was perfectly comfortable with a low base / high commission structure.”  Because they know what they’re capable of.
• “It took months to lure them away from a great book of business.”  Always the hardest part of luring them away - getting them to leave their book.
• “The rep had a list of outstanding references a mile and a half long.”  Important, because salespeople are great at selling themself in an interview, but, sometimes, that’s all they’re good at selling.

If you’re considering hiring an investment advisor for your bank, or if you currently have one or more investment advisors working for your bank who can’t seem to make it happen, then refer back to this list.  Go with what’s worked for the best shops in the US.

What are some things we know about recruiting investment reps? 

• For starters, we know that there aren’t enough of them out there.  Scratch that.  There aren’t enough good ones out there.  Sure, banks have been jettisoning Series 7-certified advisors for months now…but they’re keeping the top producers.  This dynamic keeps the supply-side constraint as strong as ever.
• We know that only 5-10% of these reps are “lifers.”  Performance and retention issues make this skill set a tough one to navigate.
• We know that care and feeding are critical, because these folks live on adrenaline and praise from their manager.
• Bottom line - Low supply +  high wash rates + high maintenance = “let the Trust Department deal with it”

Where do top investment reps work? aka, “Where do you hunt for these people?”

• Banks, like yours
• Investment shops & wire houses
• Insurance companies
• For themselves as independents

Guess where you don’t hunt for reps?  On job boards like Monster.com or Careerbuilder.  And certainly not on Craigslist.

What are these top reps doing every day?  Well…

• They’re making great money.
• They’re continually building their book of business - their clients love them and refer them business; in fact, 80% of new business comes from referrals for these folks!
• They’re happy.

All of these facts combine to form a truth that’s as plain as the nose on your face:  you’re going to have to pry them out of a very good situation.  In the next post in this series, we’ll talk about what you look for when recruiting a top rep away from a competitor.

At at a high level, Careerbuilder’s survey reveals that US employers are “holding off on staff expansions in the second quarter of 2009.”  The report states, “Instead, [employers] are focusing efforts on keeping current headcount as they navigate a tough economy.”

In talking with business owners and managers in the past few weeks, I can absolutely corroborate that outlook.  Companies have cut staffing levels to the bone, and are at the point where further staff cuts would impact deliver of products and services.  There’s not much room left, in other words.  That’s good for the employment outlook for the remainder of the year.

Careerbuilder CEO Matt Ferguson states, “Employers want to hold on to their talent and are taking measures to contain costs and bring in new revenue streams, so they can maintain their staff levels.  Sixty four percent of employers expect there will be no change in the their number of full-time, permanent employees in the second quarter.”

Two things:  First, the companies with whom I work are implementing alternatives to layoffs, with the most common tactics employed being unpaid time off/mandatory furloughs and reduction in salary.  Second, while 64 percent of employers surveyed are maintaining staff levels, the further examination reveals that only 14 percent of employers are actually adding staff…which means that 22 percent of employers expect to cut staff. 

It’s amazing how quickly things can change, isn’t it?  24 months ago, implementing pay cuts were unheard of.  Nowadays, employees are relieved when, at the “all-company meeting,” they are only being asked to take a 5% pay cut.

The meat of the report identifies “six employment trends for employers and job seekers.”  They are:

1. Trimming Perks and Benefits - a whopping 42 percent of companies surveyed are taking interim measures like pay and benefit cuts to get though this mess.
2. Upgrading Talent Rosters - 23 percent of employers said that they are taking advantage of this opportunity to replace lower-performing employees with top talent that may not have been available in a healthier economy.  Exactly!
3. Postponing retirement - 60 percent of workers over 60 surveyed said they are putting off retirement.
4. Transferring skills - 71 percent of workers who have been laid off and haven’t found work said they are looking for jobs outside of their chosen profession either because they’re ready for a change or there are no available jobs.
5. Relocating - 39 percent of workers who were laid off and haven’t found work said they would consider relocating to another city or state for a job.
6. Going back to the classroom - 21 percent of all workers surveyed said they were going back to school for formal degrees.

Without a doubt, this prolonged recession will have long-lasting effects on the skilled labor pool.  Say on top of these trends and make the most of a crazy situation.

The game is changing for employers yet again.  I’ll share with you an article posted on May 4th, 2009 by the American Staffing Association regarding the new administrations shift towards prosecution of employers who “knowingly hire undocumented workers.”  What about the fact that workers have no way of determining whether or not documents produced were bona fide?  Looks like the courts will sort it out. 

From ASA Staffing Week, 5/4/2009

In an effort to crack down on immigrants working in the US illegally, the Department of Homeland Security intends to step up enforcement efforts against employers who knowingly hire illegal immigrants.

Under guidelines recently issues by DHS - and in a departure from previous practice - US Immigration and Customers Enforcement field agents will be instructed to target employers fro prosecution “through the use of carefully planned criminal investigations.”

In the past, most raids were conducted largely after tips that an employer was hiring illegal workers, rather than because investigators gleaned information from audits of employer records or undercover investigations.  As a result, agents rounded up thousands of illegal immigrants but rarely acquired the evidence necessary to show whether businesses were knowingly hiring illegal workers.

Under the new guidelines, agents will be instructed to pursue evidence against an employer before going after its workers.   Agents will be held to a higher standard of probable cause for conducting workplace raids, due in part to concern that past workplace raids were too dependent on speculative information.

The rules are likely to draw sharp criticism from employers, which argue that they are easily duped by workers with fake identity and work authorization documents and that the government has not established a reliable system for verifying work authorization status.  Advocates of the rules say that by increasing scrutiny on employers, raids could result in fewer violations of workers rights.

Add this new policy to the growing administrative and regulatory burden that businesses already face.  Immigration reform was a political football under the Bush administration, and the solution will only become more challenging as the US economy wallows in a prolonged economic malaise.  Turning the cannons at employers is not  the solution.

All in all, the article (available here) was fairly tame, and suggested that the three million job openings in the US remain open due to these  key factors:

1. There are a glut of workers who have less marketable skills (manufacturing), and those jobs will never return to pre-recession levels.
2. The housing market is preventing these displaced workers from migrating to geographic areas where they could become employable.
3. Displaced workers are unwilling to decend the economic ladder and settle for “underemployment.”

I agree with author Peter Coy on points #1 and #2.  It’s point #3 with which I take exception.  My experience in working with clients over the past 90 days has shown that candidates are more than willing to settle for underemployment.  Talk to anyone in the corporate recruiting or HR space and they’ll tell you the same thing.  Unemployed workers - whether they be hourly or salaried - are downright desperate for work these days. 

One of the article’s call-outs shows a dotted-line cutout of a person standing at a fast food counter, leaning forward in a “would you like fries with that” stance, next to a blurb that says, “Fast food jobs are plentiful in North Dakota, but few people apply for them.”  That’s a really awful example - North Dakota is one of the least-populated states in the Union. The state is hardly a proxy for national employment trends, and fast food jobs don’t require specifc skills.  The example offered doesn’t support the author’s argument that people are hard to find.

Another quote stands out, as well.  The author cites the recent news out of IBM that they’ll be adding 4,000 specialists to perform data analysis.  The article quotes Jim Spoher, Director of University Programs at IBM, saying, “It’s really easy to find people that are 50% of what you are looking for.  It’s really hard to find people that are 90% of what you are looking for.  This is a real dilemma.”

Of course it’s a dilemma.  Hiring people with 90% of everything you need is a tough prospect in any economy.  If’ I’m trying to hire 4000 people in any skill set within a short period of time, I’m going to have a talent shortage simply because I want the top 10% of the talent available in the market.  Great companies always face a talent shortage, because they only hire great people. 

The article did offer up one quote that I felt was spot-on from a content standpoint.  Mark Mehler, co-Founder of CareerXRoads, was commenting on the reality facing many companies - that the candidates companies are seeking may not exist - and explained, “You’re hiring potential…You’ve got ot train them.”  Amen to that.

BHT Quality Rating: B-

A Talent Review is a process by which a business owner or manager takes stock of their current staff by asking two questions:

1. Is there anyone on this team who is (or appears to be) struggling with consistently hitting their performance objectives?
2. Do I have the best possible hire in each position in my company or organization?

Question #1 is fairly straightforward.  Chances are, you can immediately think of one or more resources whom you know are not delivering to expectations on a consistent basis.  If that’s the case, you have an obligation to the business to take action.  For many of us, the “not-so-fun” part of managing a team starts with telling someone that they aren’t performing at the level expected…so we avoid doing it.  You don’t need my help to figure out what to do in this instance.  Coach, and then monitor results.  Make changes if the situation doesn’t improve.

Question #2 is much more complicated, but it’s where the real payoff lies if you can determine the right answer.  Sometimes, the answer may be that you have a superstar employee, but you have them in the wrong role.  Many managers are hesitant to move A-Player staff members because they’re worried about losing that person.  That’s counterproductive thinking.

Think of it like the manager of a sports team who takes a high-performing player and puts them into a different position on the team because it’s much more suited to their skills - like a baseball manager who moves their leadoff batter into the second or third spot because such a move increases their chance of scoring runs.  Done haphazardly, reactively, and without forethought and analysis, such moves can be risky and even destructive to team production.  Done well, however, and you can turn a good team into a World Series contender.

The methodology for addressing this situation is a process I call the Talent Review, and it’s a tool that you should master.  Simply stated, the Talent Review is the process by which you analyze each position in the company, asking the question, “Do I have the best possible hire in this position?”  The process begins with reviewing the Job Profile for each position, and then scoring the team member currently in that role against the benchmark score for a “perfect hire” that’s contained in the job profile.  The goal is to make an emotions-free assessment about whether or not it’s time to make personnel adjustments that will have a positive impact on team performance.

I advocate the continuous use of Talent Reviews by owners and senior managers, because performance is never static.  It’s an especially important process to consider if any of the following are true:

• You’ve had the same team in place for longer than 12 months, with no adjustments to personnel.  Time to look at that lineup.
• Your hiring process is ad hoc, or you’re getting inconsistent results from your interviewing process.  Time to validate your original decisions.
• Your business or team is not hitting the performance objectives that have been set.  Time to analyze the problem at what is likely the root cause - wrong people in the wrong jobs.
• You have high staff turnover.  Time to find out if you have the wrong person managing staff.

Think of the Talent Review process like any other investment decision - by dedicating a little bit of time on the front end, you can dramatically cut your risks and improve results over the long run.  Cutting risk and increasing reward - two no-brainer reasons to consider a Talent Review for your business or organization.

In the contingent search industry, times are downright desperate.  While this segment of the professional search marketplace has been under pressure for years, 2009 will be a watershed moment for the entire industry. 

Here’s why:

DIY Recruiting is easier than ever.  DIY, or “Do it Yourself,” is the preferred search approach for the vast majority of companies with whom I speak lately.  It’s more than this never-ending recession that’s causing companies to reject search firms in favor of a DIY approach; it’s just too easy to find people on your own to justify a $15,000 outlay to a search firm.  Hiring managers have a different mindset, because they have an entire suite of tools - most of them 100% free of charge - that enable them to do their own candidate research in a very reasonable amount of time.  Candidate sourcing used to be the hard part.  Now, managers can just do it themselves.

Overcapacity is depressing prices.  The search industry entered 2008 with too many search firms, too many recruiters, and too few jobs to work on.  By June of 2008, search firm owners were really sweating it.  In December of 2008, most of the work simply vanished, leaving an overbuilt search industry with very few jobs to work on.  The job orders that did exist were being picked over by hungry firms like hyenas at a carcass.  I talk with search firm owners who, if they’re lucky to get an order, are sharing it with 15-20 other firms.  20:1 odds mean there’s a 95% chance that you’re working for free on that order. 

This week, a client of mine bragged that he had successfully beaten his primary vendors down to accepting a 10% fee, and he had eight vendors on the list.  That’s almost 60% off the price that firms have to charge to run a profitable operation.  I know how that movie is going to end.

Technology is replacing low-level recruiting.  I’m not saying that technology will replace search firms, because it won’t.  I am, however, saying that the number of people required to produce a successful search is going to drop precipitously, due entirely to technology.  Gone are the days of running entry level sourcers through a phone bank and dialing for leads.  Gone, too, are the recent days of having sourcers mine job boards.  Search firm managers have access to better and better tools that will sort, screen, and score candidates, reducing the need for lower-level recruiting talent.

HR is on to you, search industry.  There are only two reasons that HR uses contingent firms anymore.  One reason is because they’re trying to fill a niche-skill position.  The second reason is because they’re swamped and need an extra set of hands.  Guess what?  80% of contingent firms were in business because they were filling the easy stuff with candidates found on job boards.  That business has evaporated almost entirely.  Niche vendors are making due with the engineering and the high level auditors  and the like, but there’s not enough of that around to support existing capacity.  Worse, HR is no longer willing to pay a 20-25% fee to buy that extra set of hands. 

2009 is shaping up to be a major shakeout year for the recruiting industry.  A huge slice of the search market has been eaten up by unemployment approaching 10% (it will likely stay above 8% through 2010, exacerbating the situation), and the small, non-niche firms are going to battle down to their last dollar.  A second slice of the search market is going to be permanently lost to the new DIY managers who figure that it’s easy enough to justify the time investment.

Those contingent firms that are left will be smaller, more focused, and a lot less expensive to use.  Many will migrate to a retained model, or some form of hybrid “retingency” model, when they ask for a portion of the fee upfront.  One thing’s for sure, though - for managers who are looking to hire out for recruiting help, you’re going to get yourself one heckuva deal for a good long while.

Naturally, I was all ears.

Chet Holmes, who was a sales executive for Charlie Munger at storied company Berkshire Hathaway, kicked off the conference with a presentation based on his book, “The Ultimate Sales Machine.”  Chet had some great insights when it comes to hiring and managing a sales team (I’ve added my “applied to hiring…” ideas in italics):

• Sales success is about repetition.  Focused repetition.  That means not having your sales force doing 4000 different things 4000 different ways.  Instead, have them focus on a small number of things that get results, and do those things over and over again.  During an interview, you can assess the focus of a sales candidate by diving into the “how” of their selling process.  A focused approach will be evident.
• When it comes to selling, market data is way more motivational than product data.  When it comes to hiring, look for salespeople who demonstrate market facts when explaining what it is that they sell.  If you’re watching a candidate sell features and benefits, instead of presenting market-based facts, then you’re not seeing the best possible hire.
• Top salespeople spend at least one hour a week dedicated to advancing one incremental improvements.  It could be something as simple as reading a book or article, or role playing a sales situation with a colleague.  Ask your sales candidates to name one thing they did last week or two to improve their selling skills.  The answer will be telling.
• A great quote on sales management: “The only thing that a top manager has to bring to a meeting is his or her judgement.”  When hiring a sales manager, determine if the candidate achieved their results by maximizing the potential of their team members, or by jumping in and trying to do everything themselves.
• The top 4% of sales professionals outsell the rest of the pack by a ration of 56:1.  That’s incredible.  Further data that shows you that it’s worth it to wait for the right hire!

It was straightforward, practical insight that all of us can learn from.  Chet’s message reinforced my belief that top salespeople are tough to find, but a great recruitment and selection process can make the job a whole lot easier.

They follow a defined process. There’s no shortcut when it comes to selecting the right person for the job. Managers who produce successful hire after successful hire do so because they follow a proven formula, including:

• Writing a well-defined Job Profile
• Using an effective Candidate Work History form
• Conducting a telephone interview
• Conducting an in-person work history interview, followed by an in-person behavioral interview
• Personally contacting each of the candidate’s references
• Using a Candidate Scorecard to make objective yes/no decisions

They’re always recruiting. I’ll say it another way - they don’t let recruiting become an exercise in crisis management. Highly successful hiring managers don’t wait until they have an open position to being recruiting. They’re constantly tapping their networks, asking colleagues for referrals and staying in touch with top prospects from their competitors’ payrolls. When their company wins the next big project, they’re not scrambling for new talent and settling for average performers due to a time constraint. Lack of preparation in recruiting leads to bad hires, and they’re always prepared with available talent.

They take the time to define the role. Without a Job Profile that explains, in detail, the specific, measurable outcomes required of the person filling the role, the recruiting process will produce erratic results. Successful hiring managers take the necessary time required to think through these outcomes, and to define them in quantifiable terms against which candidates can be evaluated. They never say to a recruiter, “I don’t really have a job description written, but you know what I’m looking for, right?”

They include others in the process. Successful hiring managers know that it takes a team to make a well-rounded, informed decision about a new hire. They ask other members of the organization to sit in on interviews as note-takers in order to get outside perspective. These managers know that two sets of eyes and ears are better than one, and they ask for and listen to feedback on their interviewing style and effectiveness.

They don’t talk themselves into saying yes. Most importantly, successful hiring managers don’t hesitate to pass on candidates who are anything less than an top performer. They’d rather go for months without a key position being filled than fill that position with someone who’s less than perfect - because they know that the time spent managing that bad hire will more than wipe out the benefits gained from having someone mediocre in the role. Successful managers look to the Candidate Scorecard and make emotionless decision rooted in facts.

Successful hiring managers follow these five habits to generate recruiting results that lead to high-performing teams. Focus on developing these habits, and watch your results begin to improve overnight.

So, what’s a budget-conscious manager to do?  Let’s take a look at a recent experience with a client whom I recently advised.  This company, InfoTech Incorporated (yes, I made that up), was an entrepreneur-owned 12 person IT consulting firm that built custom Microsoft applications for midsized firms.  At $3M in sales, the owner of this firm was looking to add his “first full-time salesperson” and set his sights on hiring the best and brightest resource on the market.  This new resource would manage existing accounts as well as land new ones. 

For most entrepreneurs hiring their first salesperson, the results are typically abysmal.  Here are two reasons why:

The entrepreneur isn’t grounded in reality.  My client wanted to hire their first full-time salesperson, but they wanted to do it “on the cheap.”  While I never advocate paying above-market salaries for full-time employees, I most certainly do advocate paying people (1) what they’re worth, and (2) how people in their position are typically paid.  That means not paying people on a 50% commission plan if the market is paying 80% base 20% commission. 

To understand what someone is worth, my first suggestion would be to get online and use one of the many free compensation research tools out there.  For this case study, I went to http://www.salary.com and typed in “Account Manager.”  I scrolled through the list of suggested matches and, sure enough, found “IT Account Manager.”  The description:

IT Account Manager Establishes and maintains business relationships with internal and external customers. Develops IT projects to meet the business needs of the customers. Ensures that IT initiatives are met in a timely manner and within a prescribed budget. Requires a bachelor’s degree in area of specialty and 6-8 years of experience in the field or in a related area. Familiar with a variety of the field’s concepts, practices, and procedures. Relies on extensive experience and judgment to plan and accomplish goals. Performs a variety of tasks. Leads and directs the work of others. A wide degree of creativity and latitude is expected. Typically reports to a head of a unit/department.

That sounds just about right, so I click the “For employers: Base Salary Range (Free)” link.  I’m taken to a bell curve that shows the median base compensation somewhere around $88,000.  To get the total cost of employing this resource, I click the “Benefits” tab, and am shown the following report:

	Benefit	Median Amount
	Base Salary	$88,463	69.1%
	Bonuses	$5,695	4.4%
	Social Security	$7,203	5.6%
	401k / 403b	$3,390	2.6%
	Disability	$942	0.7%
	Healthcare	$5,722	4.5%
	Pension	$4,331	3.4%
	Time Off	$12,313	9.6%
	Total	$128,058	100%

What does all of this data tell me, and what do I do about it?  First of all, I just made a big mistake looking at the median compensation range and ignoring the high end of the scale.  I coach people to ground themselves in the reality that top performers make the top end of the scale.  Why?  Because top people are worth it, and can command higher prices.  The 90th percentile base compensation for this job is a $116,000, nearly $30,000 more than the median.  I needed my client to factor that number into their budgeting.

Second, it tells me that IT Account Managers with 6-8 years of experience have darn good benefits packages - healthcare, 401(k) match, and about 3-4 weeks’ paid time off.  They also get a 5-10% performance bonus, on average.  If you’re a small firm with limited benefits programs (typical of most small firms), then be prepared to make up the difference with salary, stock options, or a work environment that rivals anything your candidate has ever experienced. 

Keep in mind that these numbers are aggregated from survey data sent out to HR contacts at 1000’s of companies in your particular area, so this data is simply a sampling of what’s out there.  Understand, though, that these numbers are real.  If I were make a conscious effort to recruit an IT Account Manager at a comp level below the 50th percentile, I may get lucky.  I also may get a total dud.  My experience working with clients has shown me that one gets what they pay for, especially with salespeople.

The entrepreneur doesn’t do what’s necessary to make an accurate assessment of market compensation.  My client’s usual approach to recruiting was something like this:  (1) Post an ad on Craiglist with a lowball salary range, (2) receive 500+ resumes of everyone from truck drivers to actual IT Account Managers, (3) wonder why no qualified candidates applied for the job.

Posting high compensation ranges on job descriptions made my client nervous, and I understood why.  He was worried about overpaying for someone, or inadvertently giving candidates a raise without having to do so.  I said to him, stop worrying about it.  If you’re following a systematic interview and assessment approach (browse the articles on this site!), then you’re going to ensure that every candidate can back up their current compensation level with documentation.  If someone says they’re currently making a base of $90,000, then a W2 will prove that.  If they can’t prove it, or if they’ve misrepresented their compensation, then what are you worried about?  You just move on.

My advice:  post the total compensation of the role at full quota attainment.  Then talk to every qualified candidate/applicant and determine their current level of compensation.  It’s a much better, and less adversarial, way to have a conversation.  If you’re finding that the candidate who apply are either over- or under-qualified, then you simply tweak your comp range.

There you have it - a simple approach to understand the market compensation for a new role, and a general approach to soliciting interest to gauge your compensation range.  In the third installment of this series, we’ll look at setting the mix between base salary and performance-based bonuses.

Me:  So, tell me about what you’d like to see happen during the first 12 months of this person’s employment with your company.

Client:  [gives details]

Me:  Walk me through the compensation package for this role.

Client:  Um…we haven’t created one yet.  I figured that I would wait and see who I talked to and would take it from there.

Does this interaction remind you of your approach to defining compensation for your open positions?  Do you follow a “let’s see who’s available and then we’ll talk comp” line of thinking?  If so, you’re absolutely killing your chances of finding the right person for the job.

Here’s why:

There’s a market for everything.  Let’s say that I owned a car dealership (and let’s all agree that, in these times, I’m really glad that I don’t).  You, the customer, walk into my showroom and ask me the going price for the 2006 Ford Explorer parked out front.  I tell you that the price is $26,500.  Did I just give you a good price, or a bad price?

If you were clueless as to the going price for that vehicle, then you’d be incapabable of making an accurate assessment as to whether or not you’re about to get fleeced.  Perhaps you’re without a car and need a car so badly that $26,500 is worth it, just to get you mobile ASAP.  If that’s the case, you’re likely to make a very poor economic choice, in exchange for peace of mind.  On the other hand, if you had spent time researching the current market price for that car, then you’d be in a position to drive a better deal.

Every expenditure on people should result in economic benefit to your company.  Some people may be directly responsible for producing revenue, others responsible for driving productivity.  It’s common sense that nobody in your company should be drawing salary but neither contributing to revenue nor productivity.  Right?

Before you run off and start recruiting candidates for your new opening, consider the economic benefit that they bring to the table.  For sales roles, that’s the net contribution margin that this sales reps’ production will yield.  For a programmer, that may be features that retain existing customers and help win news ones.  For a Controller, that may be increased collections and better cash flow management.  Understand what you get, in real, economic terms.  Depending on the level of output or the complexity of the job, you will need resources anywhere from junior level to executive level.  More economic benefits delivered generally means a larger comp package.

Tailor the salary to the level of resource, not vice-versa.  Once you understand the economic benefit to your company, and the level of resource required, then you can begin the process of defining compensation for the role.  Don’t just say to yourself, “I need a salesperson” and then post a job that asks for 1-2 years of experience.  I talk with people all the time who say they need someone with 1-2 years of experience because they can only afford someone with 1-2 years of experience.  Then they’re surprised when the person falls flat on their face, but a few minutes of thinking it through would have resulted in the realization that they needed someone with something like 5-8 years of experience.

The question to ask is, “what level of compensation gets me someone in the top 10% of all performers in this role?”  A top-performer at $30,000 is very, very different than a top-performer at $50,000.  Sounds obvious, right?  I still find clients expecting to get a $50,000 top-performing resource for $30,000.  Put a top-performing $30,000 resource in a job that calls for a $50,000 top-performer and you’ve got a $30,000 C-Player. 

In Part 2 of this series on “Creating a Compensation Plan,” we’ll explore ways to research the talent marketplace to determine a preliminary compensation range.