Should You Increase Your Guarantee Terms?

QUESTION: My question is about guaranteed terms.  In the last 4 months I have had several companies send me their contracts that stipulate low fees, usually 20% with a guaranteed period for a full refund of 36 months.  Then I try to negotiate a better rate and they say it is a take it or leave it situation.  So what do I tell them?  Do I tell them good luck and decline to sign?  Has this been a trend that others are seeing as well?  – Jeff

ANSWER: I have been in this business since 1989, there is nothing new here.  What happens when companies start experiencing turnover is they blame recruiters and increase the guarantee period.  They are going to say things to you like, We stand by our product, why will you not stand by yours?
My response is always, ‘Because I do not make them.  Unlike you Mr. Employer, if you work in manufacturing or service, you provide the service, you install the software, or you make the widget.  It comes out of your manufacturing facility.  Here at our search firm we do not have a lab where we manufacture these people.  Our service is to be the finding and identifying authority for top candidates.  You are the hiring authority.  If you want to put me in a position where I can do the finding and identifying and then based on the short list I put together you put me in a position to then make the decision as to which one to hire, and then let me be involved with your conversations on managing and leading the person.  Then I can see myself being more accountable to their tenure’.

I would say this clients all the time, ‘I cannot tell you Mr. Employer how many times I have been in a position where we had four candidates interviewing and in my heart of hearts based on the interaction that I had with the candidates, I really felt candidate A was the best one to hire, and my client hired candidate D.  Now in some of those situations I actually heard some squirrelly things come out in the process and I warned my client that they might not want to hire candidate D and in spite of that warning they hired candidate D and that candidate left or was terminated four or five months down the road’.

I would then say, ‘Mr. Employer, in that situation where the candidate left four or five months in and I recommended they do not hire them, I want to understand how I am accountable for that’.

One scenario that has happened to me a lot of times is a client promises a candidate that they are going to do these three things for them.  If you join our firm we are going to do A, B, and C and this is part of your role.  Your role is going to be these things.  One of the reasons candidates come over, as we all know most of the time money is way down on the list, it is the challenge and the excitement.

Sometimes the employer does not deliver on their promise and we get a call from that candidate saying, ‘You know they told me I was going to work this territory and now I am going to work this territory.  They told me my role was going to have this and that thing is not there.  I have talked to them and they said, well things have changed and that might not be part of your role’.
Then I say to the prospect, ‘Mr. Prospect, so when that happens and the person leaves, help me understand where my service was flawed’.  See it is a question, not a statement.

The whole reason for the guarantee is not that we are guaranteeing the product, the candidate.  We are guaranteeing our service.  Because we know, occasionally candidates fake out both the recruiter and the client.  That is why you can generally uncover that in the first 60 or 90 days.  You know if there is an element of this person is not who we interviewed.
It is not, are they going to be the star performer?  Are you going to know that in 90 days?  No.  But you can tell if they are a fake.  You can tell if they flew under radar as much as we did a great job of asking them questions.  If that happens, then a replacement is in order.  I am not happy to honor a guarantee when, let us say it is a client you have never worked with since you are quoting terms, I am not accusing you of this, but I have had it happen where candidates have called me and this happens more that you think, and the client is not providing ___, ___, and ___ that they promised.

One of the trends you will always see happen if you go into a recession is clients start cutting fees.  What happens is you have a lot of companies and then a lot of recruiters will go out business and end up working 15% fees or worse because recruiters start accepting it.  This happened in 2009 and 2010.  Well 2011 and 2012 when we came out, a lot of those companies had to go to 20% or 25%.  Why?  Because they become more generous?  Were they more benevolent?  Business is good.  We can afford to pay more.  No.  Because nobody accepted their crappy terms.  When no one is accepting their terms, they change.  So be prepared for the challenge.

I found one of the easiest things to change in a company agreement is the guarantee, and I did find when you use the arguments I just gave you people are open to changing it.  One of the things I have done is I have agreed to the extended guarantee just like you would at Best Buy for an increase in fee.  I still do not make it money back.