Wednesday, July 18, 2012

Thanks For Wasting My Time (Part 3)

Last week we wrote about how often clients really aren’t sure what they want. Even if they have a job description it may not go beyond outlining broad areas of responsibility, basic qualifications and a compensation range. This week we’ll look at those clients who know what they want (or eventually figure it out), but aren’t willing to pay for it.

The Number One reason why clients are not willing to pay for what they want is that they cannot make it work within their existing compensation structure. Called “salary compression”, it boils down to this…it creates a lot of problems if a company brings in people from outside and pays them more than they pay their existing employees. Even if the company creates a new job level and title to justify the difference, employees soon figure out that the new hire is basically doing the same job they are doing and getting paid a lot more to do it. But isn’t compensation information confidential? How would they know? People talk. They will find out. They always find out.

So if the client cannot “afford” to hire the talent they really need without upsetting their current employees; what do they do? They call the “headhunter genie” who can surely find A+ talent for B- compensation. That’s why our fees are so outrageous, isn’t it?(No, actually our fees are what they are for a variety of reasons. Come to think of it, that’s a great subject...think I’ll write about it when I finish this series).

The reality is that there is no free lunch, there is no Santa Claus or Easter Bunny and Elvis is way dead. A headhunter may well find you A+ talent for something less than A+ compensation, but likely it won’t be much less and don’t expect more than one or two candidates. Compensation tends to find its competitive equilibrium. Unrealistic expectations with regard to compensation, whether the client’s or the candidate’s, is always a red flag for headhunters. When it is clear that the client is unwilling to step up to the required level of compensation, we only have two options: walk away from the search assignment or convince the client to lower their expectations.

The second reason that some clients are not willing to pay for what they want is that they are just cheap. Add patience along with tough negotiating skills and you are in for a long, painful search assignment. Some companies just operate that way, especially in the transportation and logistics markets. It’s a thin margin business where companies are fighting for fractions of pennies. A company cannot afford to overpay for anything and they are always shopping for the best deal. I get that and I’m ok with working under those conditions, up to a point. If the client is way too cheap and way too picky, it's just not worth it.

As noted above, our fees also play a factor. Most companies hate to use a search firm. They think our fees are too high and they should be able to find people without using us. So when they do resort to using us, they try to rationalize it by either going low on compensation or high on candidate requirements. Many times, after we’ve worked a search for weeks trying to find that perfect candidate at the right price, the client will hire someone on their own or promote from within. The person they end up hiring will meet few of the requirements we were given. But the client did not have to pay a fee.

Buying talent on the cheap is not a good long-term strategy. I understand the “salary compression” issue. Some of our clients are in low-cost markets or markets where there is a large supply of talent. They have been able to build a high-performing organization while maintaining a very conservative approach to compensation. If they have to go outside and hire, it’s tough. Usually we end up striking a balance between job requirements and compensation. Ultimately we may have to find a candidate who has other reasons for wanting to join that company in that location. It’s not always all about the money.

But if a company is consistently hiring on the cheap relative to their competition, watch out. These tend to be the ultimate time-wasters and search firms do neither themselves nor their candidates any favors by working with such companies.

Next time we’ll look at perhaps the mother of all time wasters…too many people involved in the hiring process.

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