People sometimes complain about "enormous" Headhunter fees, where we are paid something on the order of lawyers' hourly rates.  I found this an interesting problem to analyze:  Are we worth our salt?

When I perform a search correctly, my work results in millions of dollars of value to my client, sometimes even billions. I think recruiters are way underpaid for what they provide as a service, and I would say there are very few lawyers out there that have my skills or intelligence.

People making the claim that Headunters are overpaid sound like they are either knocking the competition just to get a slice of the pie, or trying to negotiate super-cheap fees. Heidrick and Struggles charged $100 million to place Eric Schmidt at Goofle, which might be an example of overpayment for services rendered, but on the other hand, if they can collect it, calling it an 'overcharge' is really a moot point. It's an industry standard.

If you want to be the McDonald's of Search and make money doing cheap volume business, go ahead, but don't knock the pros who provide much superior quality.

The average income of an attorney in California is around $180,000 per year. They may be billing at $300/hr, but they are only earning $120/hr (assuming 1500 billable hours per year). Most of the money being paid to an attorney goes to the firm he works for -- which is worthless to the client... most of what you pay for an attorney is not anything he sees (i.e. you are paying for nothing but the name of the firm he works for).

Recruiters are not only right to pay equally, but because their commission (the percentage of the fee that goes directly to the recruiter) is usually higher than an attorney's rate, they are much more invested in the work, and provide superior service and results.

As an example: In 2005, I placed a prolific inventor whose initial stock options (from the placement) have increased in value by at least $2 million and whose innovative research enabled his company to secure gross yearly income in excess of $1.4 billion. When I placed him, the company was earning less than $100 million per year. My work enabled the company to increase their value by a factor of at least 14.

I was paid $151,000.00 for my work, which I thought was quite low, at the time, although it is clearly a sizeable fee.  My candidate, in latest SEC disclosures, appears to have made at least $3 million (gross) this year, from stock sales.  So, my compensation was at most only 1/33rd of what my candidate earned in 9 years, and 1/10000th of the company's current yearly earnings.  I'd love to make more such placements, of course, but I'd prefer to be paid with stock as well, next time.

I don't think people should be complaining about Headhunter fees!

Moreover, the claim that Attorneys and Doctors, etc. are worth their fees (I was charged $300 for my last 5 minute doctor visit, which gets knocked down to $100 after adjustment for insurance, etc., but still my Harvard Medical School graduate doc is nominally billing $1200 per hour -- I'm not saying he's not worth it, either), but that Headhunters are not, simply because 'we didn't have to go to school for it' is a specious argument.

Firstly, Headhunting is a skill that is quite rare.  It's true that "anyone can put up a shingle" and call themselves a recruiter. However, in my experience, the 'wash-out' or failure rate is enormously high, too.  In my company, we joke that we don't bother to learn the names of new recruiters until they've survived at least six months, and hopefully closed a deal.  Most who try to succeed don't.  I estimate the failure rate at 95%.  Yet, the recruiters who do succeed spend years learning valuable skills in sourcing, closing, negotiating, marketing, communication, psychology, and other areas.  

Law School and Medical School (or Dental School) are great 'qualifiers' to eliminate unqualified people from performing crucial work, but so is the inherent failure rate of the recruiting industry...  Despite Law School and Dental School, the last two dentists I went to (prior to my current one, who is outstanding) tried to drill my teeth for no reason, and recommended completely unnecessary work.  I also know of one attorney who just got sentenced to several years in prison for bank fraud. Clearly, the schooling these professionals get does not guarantee ethical perfection or even solid mastery of the skill-set.

Contrariwise, any Headhunter who survives five years in the industry is clearly a performer on some level.  Those who excel are even more so.  I would argue that the challenges of becoming and staying a Headhunter (especially in a sluggish economy) make us even more qualified to charge high fees... since our skills are tested and bona fide by the harshest of critics -- Experience, itself.

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Tags: economics, hourly-rates, job-market, market-value, value, value-added, wages

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