Mumbai:It’s no longer incumbent on just a fresh recruit to prove his worth in a new company. The headhunter who helped place him has an equal stake in his performance, or the lack of it. The job of a hiring agency now extends beyond the placement of a suitable candidate as companies wait to see how a new hire performs before they finally release the full payment to the placement firm.
In a marked departure from existing norms, this is the kind of risk-sharing arrangement some executive placement firms are now entering into with companies. That’s because the cost outgo on account of mis-hiring appears to be on the rise and, according to industry estimates, it can be anywhere between 26% and 100 % of the annual compensation package. Clearly, the accountability factor has risen when it comes to senior-level placements in organizations.
Executive Access (India), a leading search firm, for instance, puts 50% of its fee at stake for a CEO placement as part of a new initiative it’s working on with certain clients. This amount is recovered after the CEO placement is successful in the new organization. Similarly, at the CXO level, the agency staggers 40% of its fee to be paid 3-6 months later. “Companies are looking for quality service on executive placements and their expectations have risen. The cost of mis-hiring in challenging times can be a huge drain on an organization,” said Ronesh Puri, MD, Executive Access (India).
Puri said there is also growing awareness about ensuring that there is no mis-hiring as it can make or mar an organization. “With stakes being so high, companies want more accountability from search agencies. Out of the 120-odd searches we do in a year, a majority (60-70%) is done through this method and most of them (over 98%) have met with success,” said Puri.
C K Birla is one of the groups with which Executive Access has entered into such an arrangement. According to the arrangement, 40% of the payment to the hiring agency for executive placements is deferred and paid over 3-6 months of the executive joining the organization.
“It would be good if all hiring agencies begin to stagger their payments on executive placements over a certain period so that the organization gets time to understand if the concerned executive settles down well within the new culture and is not a misfit. This aspect
is gaining importance for organizations, as several global reports point out that about 50% of new hires in the senior-top executive levels leave the organization within the first one year,” said Eric Rajendran, group president & head, HR, CK Birla Group.
Moorthy K Uppaluri, CEO, Randstad India & Sri Lanka, which also follows this practice, said some companies have made staggered payments a standard clause. Both Uppaluri and Puri refused to disclose the names of companies which were working on these models with them citing client confidentiality.
What is becoming an industry standard, however, is that if a placed candidate leaves a firm within a year, then the search firm finds a new candidate without charging any fees. “This is done to demonstrate long-term commitment and we continue to engage and guide a candidate that we place,” said K Sudarshan, managing partner-India & regional VP- Asia, EMA Partners International. The staggered payment issue is still less common, he added.
Global search firm Egon Zehnder, too, guarantees clients a replacement in one year if the executive quits. It also offers a service called accelerated integration in partnership with clients to ensure executives placed become successful in their new jobs more quickly. “At times, the rejection rate is very high when an individual is brought in from outside. So we help them integrate in the organization. We have done a fair bit of analysis which shows that it normally takes about 12 months for a person to become productive in an organization,” said Rajeev Vasudeva, global CEO, Egon Zehnder, which conducted a study to show 57% of executives took more than six months to adjust to a new role.
Accountability factor has risen for senior-level placements
Cost outgo on account of mis-hiring is on the rise — estimated to be between 26% and 100% of the annual compensation package
Some companies have made staggered payments a standard clause
Placement agencies also do not charge to find replacements if a new hire quits within a year of joining the company
Source : The Times of India
Date : 28/4/2014