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Welcome to The Full Desk Experience, a podcast for leaders in the staffing and recruiting industry. Hosted by Kortney Harmon, Director of Industry Relations at Crelate, this show is designed to provide insights and tips from a highly knowledgeable consultant in the field.
Join us live (or catch the replay) in our Workshop series, where Kortney delivers expert advice and actionable tips for you to take to your firms immediately.
In the Industry Spotlight series, Kortney interviews industry experts and leaders, highlighting their journeys to success and key insights into the staffing and recruiting industry.
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Tom Kosnik [00:00:00]:
Show those examples. Hey Tom, over here. He's making x and here's how he's making x. Real examples that people can sink their teeth into and then just take out anything that's nebulous. Just answer all the questions that anyone's going to have in their head about a compensation plan. And again, what that does, it just communicates. Mister Kennedy. We have our act together.
Tom Kosnik [00:00:21]:
We know sales, we know salespeople, we know how to build a good plan here.
Kortney Harmon [00:00:26]:
Hi, I'm Kortney Harmon, director of industry relations at Crelate. This is the industry Spotlight, a series of the full Desk Experience, a curlate original podcast. In this series, we will talk with top leaders and influencers who are shaping the talent industry, shining a light on popular trends, the latest news, and the stories that laid the groundwork for their success. Welcome back to another episode of the full Desk Experience. Industry Spotlight welcome to the full Desk Experience podcast. The podcast that brings you insights from top staffing and recruiting industry experts. I'm your host, Kortney Harmon, and today I am thrilled to have a true authority in the field of staffing and organizational development. Tom Kosnick.
Kortney Harmon [00:01:16]:
Tom is the president of the Vices group. He has been facilitating the president's roundtable for over three decades. That right, Tom?
Tom Kosnik [00:01:24]:
Over 30 years. Just over 30 years.
Kortney Harmon [00:01:27]:
Amazing. I mean, obviously, with all of that experience and your organizational development background, you're working with profitability and improvement and work culture transformation. Tom has coached and consulted with hundreds of corporate leaders across the US. So in today's episode, we're going to deep dive into the world of compensation plans and staffing and recruiting. Who doesn't love to talk about money? From sales reps to executive level employees, we're going to really discuss the intricacies and effective compensation structures. So with Tom's expertise on challenges, best practices, things to consider, I'm really excited to dive into performance and aligning with industry standards. Tom, everybody wants to know what they're missing when it comes to compensation. So I'm excited that we get to talk about this today.
Kortney Harmon [00:02:15]:
So thank you.
Tom Kosnik [00:02:15]:
Yeah. Yes, so am I. So am I. This is a topic people say to me one time I did a session for 3 hours for one of the state's association and I got great remarks and all that. Somebody said, you talked to people for 3 hours on compensation. I said yes, and they loved it.
Kortney Harmon [00:02:32]:
It's one of those Fomo topics like, what am I not doing right? What should I be doing? So people always have questions. So thank you so much for our listeners. I obviously know a little bit about your background and kind of your journey here. So tell our listeners a little bit of how you got started in the space, what keeps you here, and a little bit more about the vices group.
Tom Kosnik [00:02:51]:
Yeah, sure. I got started by setting up the peer roundtable program. We have close to 100 c level executives involved in our peer roundtable program, and we have president roundtables, CFO roundtable, CMO roundtables, and CRO Roundtable. And it's true, peer to peer exchange. And we differentiate by facilitating through creative problem solving processes. And we have clients, plural, that have been with us for more than 20 years in our roundtable program. So we know we're doing something right there. That's how I got into the industry.
Tom Kosnik [00:03:26]:
And then three years in, all I was doing was building the round table program. Three years in, I decided to get a master's degree at Bowling Green State University in organizational development. Never looked back. And so now today we do, gosh, all kinds of things. Strategic planning, sales planning, financial analysis, cash flow, building out of. We have some folks that do on our team that will coach CFO's, coach sales managers. We've done interim sales management. Of course, my skills are more in helping build a sales plan, helping build a strategic plan.
Tom Kosnik [00:04:00]:
And the compensation we have now, a dozen or so subject matter experts off with that come from the staffing industry. All that have specific years of experience in certain areas, whether it's technology, whether it's back office, whether it's sales, whether it's operations, and depending upon needs of the client, we can marry them up with somebody that can really help them. As you know, a lot of companies in the industry, they grow to a certain size, they get stuck. And that's really what we're about. We help them get unstuck. And in regard to compensation, not a week goes by where we're not working on a compensation project. Literally not a week goes by that we're not working on a compensation. So we're really become the leaders in compensation analysis and compensation design for the staffing industry.
Kortney Harmon [00:04:46]:
I love it. I mean, I've coached many places, I've worked with many firms, but it's always the thing of, what am I doing wrong? What am I doing right? How do I pull back just a little bit more to get a little more in my pocket but not make people mad? It's that fine balance. So, I mean, let's dive in. Obviously, it's fundamentals talk basics. For me, what makes up a good compensation plan right off the bat?
Tom Kosnik [00:05:08]:
I have to tell you this story if we're going to build a compensation plan. I send the whole list, the methodology, everything we need, the P and ls, the existing comp plans, the job descriptions, performance metrics, all that stuff. So I landed a job, I don't know, this was like a year ago. And I said to the owner of the business, they said, send me the existing compensation plan. He said, tom, it's one sentence in length. True story, one sentence in length. So that's really not a compensation plan. But a lot of times we run into firms, they're good firms, good people, but their compensation plan are missing a lot of pieces.
Tom Kosnik [00:05:45]:
So when you think about what should a compensation plan include, some kind of language about the base salary, a description of each of the sales components, the sales levers you have in the plan, how commission is calculated, having examples, having graphs. In the end, a good compensation plan is a sales document to an a player that you're trying to attract. So if you have a well thought out, well built out compensation plan and you're sending that in front of a players, and then they're comparing that to other places that might have substandard compensation documents, it says a lot to that a player, but just clarification points a lot of times. Compensation plans, they're one page. We do compensation plans, they end up being 1213 pages depending upon the different sales levers that are involved and based upon what they want. The other thing that in terms of what should go into a compensation plan is just think total compensation. So that would be base salary, the three or four different sales levers that you're going to commission on. But then what about anything else? PTO phone allowance, gas allowance, tuition reimbursement allowance, educational allowance, all of that is a total compensation package that really should be articulated and communicated in your compensation.
Tom Kosnik [00:07:10]:
And then it's rare that I see this. We always have a confidentiality agreement in the compensation plan itself and then a signature line. There are other components, too, that you can include, definition of terms, depending upon who Youtland, who you're hiring. But in the end, people want to know what's in it for them. We all do. And you have to show them where they're going to make their money, how they're going to make their money. How many times, Kortney, how many times have you heard? You've got experience in the industry. How many times have you heard, oh, I was sold a bill of goods.
Tom Kosnik [00:07:41]:
They told me I was going to make $125,000 a year. This job's too tough. I was sold a bill of goods. But if you've got a players, you got b plus players on your team that are generating whatever, making 120 or $130,000 a year. Show those examples. Hey, Tom, over here, he's making x. And here's how he's making x. Real examples that people can sink their teeth into and then just take out anything that's nebulous.
Tom Kosnik [00:08:06]:
Just answer all the questions that anybody's going to have in their head about a compensation plan. And again, what that does, it just communicates. Mister candidate. We have our act together. We know sales, we know salespeople. We know how to build a good plan here. And if we know how to build a good plan, well, we know how to recruit, we know how to fulfill, we know how to make decisions. Right?
Kortney Harmon [00:08:27]:
We have it together.
Tom Kosnik [00:08:28]:
Yeah. Right. It's all part of it. It's all part of it. And you put your first best, you put your best foot forward. And that one of those best foots is a well developed, engaging, compelling compensation plan. We're talking about salespeople here, for God's sakes.
Kortney Harmon [00:08:43]:
Absolutely. Well, and I think, too, as people start an organization, I mean, let's face it, most people, when they leave staffing and recruiting, they might have ran a desk. They're like, I'm going to go start my own. And then as they grow, they forget or they realize, and I know in our previous conversation, it's parole. As they grow, what is their structure look like? So I think maybe the base, on the rest of the conversation, we pick apart each of those roles, if you're okay with that.
Tom Kosnik [00:09:11]:
Yeah, yeah, that'd be great. Yeah.
Kortney Harmon [00:09:13]:
Okay, so you said sales. We're going to start with your basic sales rep, because that's the person that's there. And obviously, I know every staffing firm has their own unique, special way of handling a commission plan. I don't know if I've seen any two plans alike. But is there other consistencies or is there more to it that I'm seeing? Because it's to everybody.
Tom Kosnik [00:09:34]:
Oh, gosh. Look, I mean, the industry, a lot of the companies were started by salespeople who are people people, wonderful people, our clients, who've got fantastic clients, but they're not finance people. They're not numbers people, finance people, spreadsheet people. They have other people that they give that job to. And so what do they do, Kortney? They just simply, well, this is the way that I was compensated when I worked at XYZ. Oh, I have a buddy that works at this staffing company and they do this. I like that. I'm going to add that in.
Tom Kosnik [00:10:04]:
But in terms of understanding the targets, understanding what percentage of gross profit goes back to the resource, understanding, putting some together, some kind of a game plan on gross profit production per week, per month for that individual. But in the end, I mean, the reason why it's like all over the board is that you have folks that just kind of pull from what they've heard or what they've experienced themselves and then they put together whatever. Frankly, most of the time the compensation plans are end up being way too rich. Too much gross profit is going out to the sales team. And I've seen stuff where 65% of the gross profit is going to the sales team.
Kortney Harmon [00:10:42]:
Do you see that a lot?
Tom Kosnik [00:10:44]:
You'd be shocked. You'd be shocked how often I see that. Yeah.
Kortney Harmon [00:10:48]:
Wow.
Tom Kosnik [00:10:49]:
Yeah.
Kortney Harmon [00:10:49]:
Okay, so what is a good percent? What does a good compensation plan look like for a sales exec and maybe what are the key ingredients that someone should be looking at?
Tom Kosnik [00:10:59]:
Hey, this is such a great, and this is true for every role that you have. And that is strategically, what are we trying to do here? Are we trying to geographically grow? Are we trying to grow in different niches? Are we trying to dominate the Chicago market or the New York market in this area? So strategically, what are you trying to achieve? And then ideally, and we're not talking about job descriptions or job profiles of more of a fan of a job profile, because that weight classes, certain areas that the individual's got to perform. But what are those specific behaviors that I'm looking to reward or that the company is looking to reward in order to meet those benchmarks, execute on that strategy. So you want alignment all the way down from the compensation plans, the job profiles, the quarterly initiatives, the strategic plan, the stronger the alignment, the greater it's all going to fit together. And I want to say, boy, you got to have multiple sales levers. So, so many times. I see just, oh, we're going to pay them a percentage of gross profit, Tom. We've got a great compensation plan.
Tom Kosnik [00:12:02]:
We pay them a base and then we pay them 10% of whatever gross profit they bring in. Well, you're missing out on a lot. So a really engaging compensation plan is rewarding the behavior that, you know, that the resource needs to do in order to succeed that's aligned with your strategy and what you're trying to accomplish. And then it also utilizes multiple sales levers. They don't only commission on lag indicators, they'll commission on lead indicators. If there's some kind of a team environment they're trying to achieve in their offices or with their people, they may have a component in there with that. If they're year end bonuses, president's clubs, again, back to the finance of it. Our guys are doing three quarters of a million of gross profit.
Tom Kosnik [00:12:47]:
I know a certain percentage of that needs to be allocated towards that resource. I've got the base taxes, benefits. Oh, I've got this amount of dollars left. How am I going to divide those dollars with? And you utilize different sales levers to allocate those commission dollars to the plan and to reward the person to do what they want and look good. Salespeople, they love them. They love to see, gosh, there's four different ways I can earn money here. Who's not going to like that?
Kortney Harmon [00:13:13]:
Okay. A motivated salesperson will eat that up.
Tom Kosnik [00:13:16]:
And just because you have four different sales levers in a comp plan doesn't mean like it's over complicated. It could be real simple. Hey, you get 5%, 7.5%, 10% of direct hire deals that you close, you get x percentage gross profit, you get a quarterly bonus based on accomplishing one key initiative that we want you to do. Is that making sense, Kortney?
Kortney Harmon [00:13:37]:
Makes sense. I feel like I remember living that same world not so long ago, and that was a long time ago. So, yes, I completely understand that you talked about people having such rich compensation plans. I want to step back to that because what is like the lead indicator for people to be like, ooh, maybe I shouldn't be paying that much. I feel like some of the organizations that I've worked with, they don't know what they don't know unless they go have a conversation with someone else and they're comparing an apple to an apple and an orange to an orange, they've got no idea. What is their first step in looking at to be like, am I on the right track?
Tom Kosnik [00:14:12]:
Yeah. So a couple of things I want to say, and that is you'll think four times, five times again, there are other cases I'll talk about, but for most, when we build a plan out, we build a plan out for a solid b player because that's going to be 80% of your sales force. And then what we do is we model it out for the a players to make sure that it doesn't become too rich on the top end. But when you've got a solid b player that's hitting all their numbers and they're doing six hundred k to a million of gross profit production. It should be 20% of their gross profit production, 20 to 25, depending upon where they're at on that. You know, if they're doing 400,000, it's going to be closer to 27% when they get to 600. It's going to be closer to 20%, 22% maybe when they get to 750, it's going to be at 20% when it gets to a million. 18% of their gross profit production being allocated back to them.
Tom Kosnik [00:15:04]:
But understanding that whatever our gross profit production is for the resource, that I'm going to build a plan that when they're hitting their numbers and they're at that million dollar mark, three quarters of a million mark, 700,000, whatever it is, that somewhere between 20 and 25% of their gross profit is going to be allocated back to them, which includes their salary, it includes their commissions and includes their bonuses, and it includes their taxes and their benefits. So total comp. And so that's one thing to keep in mind as you're modeling out your commission structure. So there's a lot of times two story, you know, it's true story. Oh my gosh, this poor company. I mean, they had two resources, and the guy when he started the business didn't know what he didn't know. Nice guy, you know, but anyway, he said, oh, well, hey, I'll give you 50% of the gross profit, anything you generate. Tom, I'll give you 50% of the gross profit.
Tom Kosnik [00:16:00]:
Okay, let's subtract out another 25% of that gross profit to the fulfillment team. Let's subtract out another 25% for GNA expenses. Guess what? Zero net income. True story. By the way, it's not some wild once in a lifetime true story. I've seen this multiple times where you look at a resource and you break it down. You're like, my God, this company's not making any money from this resource. They're giving all the money to the salespeople.
Tom Kosnik [00:16:27]:
That's not the salesperson's fault, by the way. No, somebody created a plan and they didn't know what they were doing, and they didn't know these ratios that they needed, they needed to be shooting for. They didn't have a budget. They just didn't ask a lot of questions that you need to ask when you're putting a comp plan together.
Kortney Harmon [00:16:41]:
Do you see the opposite side of it too? Like you said, you see people who overpay. Do you see a lot of offices that are underpaying their people?
Tom Kosnik [00:16:48]:
I wouldn't say, again, different sectors. I'm going to say two things before I answer that question, by the way. When you get to these a performers, these people that are doing two $3 million of gross profit, because you've paid for all of that other salary, when you've modeled it out, you've paid for the salary, the benefit, and the taxes. When they hit half a million dollars of gross profit, then the only thing you're paying on is basically their percentage. So at $2,000,002.5 million, 3 million of gross profit production, actually it goes down to 12%, 10%. Of course, they're making. The rep is making more money than a rep is ever going to make anywhere else. But this is another puzzling thing, that why are we hanging on people that can't get past $350,000 of gross profit production? I mean, it's just the wrong job.
Tom Kosnik [00:17:40]:
And think about the net income the company's losing on, because they're not attracting and they're not keeping the a players a players. You do need a body of b players, steady eddies, and you build your plan for that. But the crazy thing is that when I see these comp plans, when we build a comp plan for the a plus plus a players, a players, those comp plans, then when you look at the ratio, the percentage of their gross reduction being allocated back to them, it continues to drop as the gross profit increases. It's a beautiful thing in terms of the underpaying. I see that more common, like in these small, tiny markets, and typically more like on the commercial side. You know, we pay our recruiters, we pay our salespeople not a salary. We pay them an hourly wage, and then we pay them whatever, whatever they're going to pay them in terms of a percentage of the gross profit. When you get into the big urban areas, too much competition, too much sophistication, too many options for those salespeople.
Tom Kosnik [00:18:41]:
And so then that's where you get into. That's where then people throw money at the problem. Oh, gosh, we have a resolving dollar with our salespeople. It must be our comp plan. Let's make it richer. Real common response in the staffing industry. We see, and we're not talking about turnover. Be happy to talk about that on.
Kortney Harmon [00:18:57]:
Another podcast the whole episode.
Tom Kosnik [00:19:00]:
But compensation is only one variable that could affect turnover. But typically our immediate response is, hey, let's make the comp plan richer. Yeah. So the whole underpaying thing, I see that more in a smaller market, typically more on the commercial side of the business, not so much on the professional side.
Kortney Harmon [00:19:17]:
You talked about the a plus plus players. So I'm going to go. We talked sales exact. Let's move up to sales director, move up the ladder a little bit. Obviously, there's someone who's still probably bringing in business, but also managing a team. Congratulations, you've been rewarded. You do well. How do you approach the compensation for this one?
Tom Kosnik [00:19:37]:
Yeah. So here's a real common mistake with sales, with directors of sales, and that is Tom, welcome to the company. Here's your comp plan. We want you to carry a book and we're going to pay you X on your book, and then we're going to pay you an override on these three salespeople that you're managing. Big, big, big mistake, because that sets up a conflict of interest. And so with a sales director of sales, a producing director of sales, and the most successful sales managers, vice presidents of sales, sales directors of sales, the most successful, they're all knocking down deals, they're all helping their reps knock down deals. And in the end, look, I mean, salespeople, if you've got a manager that's sitting behind a desk and looking at numbers and not going out on sales calls, not really adding, helping them knock down deals, they lose respect real fast. So you're going to want your director of sales to get their hands dirty in the mix, but in terms of compensation, you want to compensate them on the entire book of gross profit.
Tom Kosnik [00:20:37]:
If you figure the model out where WhatevER Tom brings in, whatever these two or three sales reps bring in, then I make that. The individual makes, resource makes a percentage of that. And then another piece. And this would be true with the recruiting managers as well, area managers as well. We'll probably talk about that a little bit later. But that is many, many, many times I walk into a company and they have 20 sales reps on staff, and it's the 80 20 rule. You've got three sales reps that are bringing in 80% of the gross profit. And so.
Tom Kosnik [00:21:09]:
Well, what's that about? So in that example, in that case, we set up these plans where my job as a sales manager or director of sales, I need to get all of those people that I'm managing that are now that 80% that are not producing what they should be producing, I've got to get whatever 10% increase every six months. Then what you do is that you have your tracking the gross profit of those, in this example of those 17 people, and then at the end of the quarter or at the end of six months, you aggregate it and then the commission is commissioned on that aggregated percentage. So that way a sales director then is being rewarded to build the team, to move c players off and to build salespeople. It's a sales organization. That's what you want. So again, common mistake. There's many sales director of sales and v piece of sales. I just don't see that kind of thinking in the plan.
Tom Kosnik [00:22:13]:
And then of course that would be like a production. You might include like a quarterly key objective bonus. And that is whatever. Again, what's the strategy? What are we trying to get accomplished? What's happening? There's ways to do that where it's for the seventies, 80 9100 percent of hitting your objective. You break it down and you explain it and all that stuff, all that stuff that these wonderful business owners hate to pencil out and think through. That's what we do for a living. That's what we do is we help them through it. And then once it's done, they're like.
Kortney Harmon [00:22:47]:
Wow, Tom, this is amazing. Why didn't I do this before?
Tom Kosnik [00:22:52]:
Exactly, exactly, exactly. It's fun work and you're, we're helping them just better manage the company. So a little bit more on director of sales positions.
Kortney Harmon [00:23:01]:
Okay, so let's flip the script. We're going to go to the recruiting side of the house. And you made the comment earlier that, you know, we're all a sales organization. Recruiters technically are salespeople too. But talk to me about the biggest hurdles you see when creating a compensation plan that really engages recruiters.
Tom Kosnik [00:23:17]:
Recruiters, a couple of things. I would say. You can read all the demographic information that you want, but in the end, what do clients want? You know, clients want speed, they want quality, and they want a good price. We've been seeing these statistics for years and years and years. So a lot of organizations look at the fulfillment team, the recruiting team. It's sort of like a administrative sales function, second class citizens, so to speak. And so when you're creating a compensation plan for recruiters, you really want to create a plan that's going to. Not necessarily, and I do have clients that commission the salespeople, the recruiters, the exact same way, the salespeople, that's typically in the professional side of the staffing industry.
Tom Kosnik [00:24:02]:
But you want to create a compensation plan that really rewards this kind of effort where people aren't saying that they're second class citizens and anybody listening to this call that thinks that no, nobody knows what each everybody else makes. You're very naive. Everybody knows what everybody else makes. So creating a really good compensation plan for recruiters. Again, think about these different sales levers. Think about a percentage of the gross profit, first off, the financial end of it, knowing how much gets allocated back to the recruiters. I got a superstar. On a professional side, I got a superstar.
Tom Kosnik [00:24:35]:
And even on a commercial side, I got a superstar salesperson. I'm going to need two, three commercial. I may need six recruiters to support that one resource. I've got clients that are doing, with salespeople doing 13, $15 million of business. If they're doing 18% gross margin, I mean, figure it out. You're two and three quarter million of gross profit. How many recruiters are you going to need to fulfill that? So when a percentage of gross profit, understanding the percentages and how much money you've got to support that book of business, but then think about some of these other sales levers or sales components. Oh, we're not getting any leads from the recruiting team.
Tom Kosnik [00:25:17]:
Sales team. Oh, boy. Let's put a compensation component that rewards the recruiters to get leads to give to the sales team, as an example. Again, depending upon what the company wants to do. But there's all these different key objectives you could do. And I get a push back on these quote unquote activity bonuses. But frankly, I mean, for new employees, they're fantastic. And that is, hey, make x number of calls a day or x number of connects a day or x number of screens, interview screens.
Tom Kosnik [00:25:47]:
You don't want more than three. Three is kind of the max. But anyway, so you could build out some kind of an activity bonus. That's for your newer recruiters and frankly, the benefit of that. And you pay them on a monthly bonus. So now you've got, if you hire a recruiter, they're making their base salary, but now if you've got an activity, a monthly activity commission, and they're doing their activity, then 30 days they're making commission. Back to what we said, like 20 minutes ago, I was sold a bill of good. This job's too tough.
Tom Kosnik [00:26:15]:
Look, man, you got 90 days. You have 90 days. It's all kind of research on this. You have 90 days to get money in that recruiter's pocket, 90 days to get money in that sales guy's pocket. So figure it out. That's what management, that's what people that own these businesses, that's their task. Figure it out. Otherwise, Kortney, you know what happens onto the next.
Tom Kosnik [00:26:36]:
Yeah. Oh, this job, this job's too tough. This job's too tough. I don't like it. I'm going to go find another job. So, again, back to with recruiters using those multiple sales levers in the plan. And I used to be, oh, my gosh. You got too many compensation plans in here.
Tom Kosnik [00:26:51]:
And there is too many compensation plan issues. But look, for a salesperson and a recruiter, maybe you have a starter compensation plan for a recruiter for the first nine months, and then they transition. After they hit, you know, five k a week in gross profit, they move to the big boys commission plan. Yeah, just thinking this stuff through. But there's so many creative things. And here's the other thing. This kills me. These simple, simple, low dollar.
Tom Kosnik [00:27:17]:
Oh, my gosh. Two movie tickets. Like, whoever does the most screens this week, they're gonna get two free tickets to the movies. Oh, my gosh. It cost you $40.
Kortney Harmon [00:27:28]:
People are competitive. They'll win that.
Tom Kosnik [00:27:31]:
Oh, my God. And they're killing each other to get that, those two free movie tickets. You know, human being, you gotta love human behavior, right? It's all part of it.
Kortney Harmon [00:27:39]:
So, anyway, I'm gonna take you back to whenever I ran a desk, because when I ran a desk, I did both direct hire and contract work.
Tom Kosnik [00:27:48]:
Oh, okay. All right.
Kortney Harmon [00:27:49]:
Talk to me about what complications can arise when dealing with recruiters who handle both sides.
Tom Kosnik [00:27:56]:
Yeah, sure. You know, I've done a gazillion office assessments, business assessments, and look, in the end, they are two completely different jobs. Number one, the Persona, the personality, work preferences of the recruiter, completely different. Direct hire and contract staffing. Contract staffing, temp staffing, much higher pace, their role, and they like, oh, man, tom, I love the. I love the energy. I love the activity. I love to come in and hit the ground running five days a week where the direct hire recruiter did more method, more slower pace, more consultative, much deeper dive on the intake, the return.
Tom Kosnik [00:28:36]:
Like on the temp side, you got to get resumes back to the client within 24 hours in less, in some cases, no more than a couple of days with the competition out there. So in the end, recruiters pick. They pick what they want to do. I don't know if I've ever seen a recruiter that had 50% of their book in direct hiring, 50% of their book in contract. It's either I'm a contract recruiter, I'm doing contract staffing, and I do, by luck, a direct hire deal on the side. And then I have clients who have direct hired recruiters that have all these fantastic relationships, and the guy's pulling his hair out. These clients of theirs have all these contract job orders, but I can't get the direct hire guy to sell the contract stuff because the direct hire guy, that's contract. I don't do that.
Tom Kosnik [00:29:21]:
I'm not interested in that. I can't make any money. I want the big fee. The biggest challenge is that in the end, employees pick their poison in terms of what they want to do. And then when you build a comp plan where you're going to reward me on contract gross profit and maybe a quarterly MBO or something like that, and then you're going to give me a direct hire fee based on dot, dot, dot. If the fee on the direct hire side is too rich, too strong, we'll pay you 25%. We'll pay you 30%. What happens is it takes that individual's eye off the ball with the contract of building the contract.
Tom Kosnik [00:29:51]:
And frankly, one of the things a company can do is, oh, Tom, you closed the direct hire deal. We're going to take that $15,000 and we're going to extrapolate it over the course of three months into your gross profit, and then we'll pay you out at whatever percentage that you're at. It's a real challenge. And there's a lot of firms when they're starting an office, when they're small. Oh, we're going to do direct hire? No, this is just my. This is just my mathematical mind. So, Kortney, let me just ask you some numbers. A good direct hire recruiter is going to work how many job orders full time direct hire recruiter will have how many open job orders effective working that.
Kortney Harmon [00:30:28]:
They'Re actively working on?
Tom Kosnik [00:30:29]:
Yeah. Three. I typically hear like six. Okay, five, six full time. Right. What typically is the close rate of a direct hiring recruiter?
Kortney Harmon [00:30:39]:
It varies in industries. What have you seen?
Tom Kosnik [00:30:42]:
25% to 35%. Just follow my train of thought here.
Kortney Harmon [00:30:45]:
I'm following.
Tom Kosnik [00:30:46]:
It's a full time direct hire recruiter. So people come to me and say, oh, we're going to get this office open, and we're going to have our recruiter do one just to land one direct hire job order a month. And that's going to pay for the office rent and this, that and everything. Well, to close one direct hire job order, you're going to have to work on four jobs. Four direct hire jobs, which is a three quarter, 70, 75% of their time now is being allocated to the direct hire side of the business or the direct hire job orders in order to close that one.
Kortney Harmon [00:31:20]:
Look at your mind go, how much.
Tom Kosnik [00:31:22]:
Time do they have to do any kind of contract work? Kortney?
Kortney Harmon [00:31:25]:
Minimal, right?
Tom Kosnik [00:31:27]:
They don't look at the numbers. Think it through. That's another common, common mistake that staffing companies, again, we're talking about smart people. I mean, they're running successful businesses and all, but there's this myth about, oh, we'll just do. Show me the numbers, show me the numbers. Show me the numbers and we'll figure it out from there. Anyway. It's a sticky, challenging thing.
Kortney Harmon [00:31:49]:
No, I love it. I love it. I'm going to switch maybe before we get to recruiting manager because you kind of talked about that a smidge before, but there are oftentimes that like middle ground. So it's the person that maybe they're stepping up. They are maybe managing some junior team members or mentoring. How should we be thinking about their compensation components for where they are? Maybe it's that cleaner position.
Tom Kosnik [00:32:16]:
Yeah. This is such a great question. So you have recruiters that are showing some management and some leadership promise, mentoring promise. And you're going to determine typically here in the industry is team lead. Kortney, I want you to be a team lead to Tom and Emma here, who are wet behind ears and are afraid to make phone calls. Just kidding. Typically a team lead does not. They don't have hiring and termination authority.
Tom Kosnik [00:32:45]:
They're technically not managing. They're not doing the weekly looking at metrics with the individual. They're just, they're mentoring, they're helping them out. And so many times they want to sit in the bullpen with them and, you know, companies, they've kind of had to adopt with people working from home. And so then they're either jumping on two Zoom calls a day to kind of look at who they have in their pipeline and where things are solved and where things are moving forward, all that stuff. But in that role, that team lead role, you can pay an override. I'm not a super big fan of quote unquote overrides, but in that scenario, because the job of the team lead is 5% team lead and 95% my book of closing that deal. So then you just simply pay them.
Tom Kosnik [00:33:30]:
You pay them an override on whatever gets closed from these employees, you pay them an extra 1% or something like that. That's one way to solve that, to address that issue. The other way to address that issue would be to have some kind of a formal mentoring program with that job description, job tasks, all that. You can just pay them a flat fee. Oh, you're going to mentor Tom, you're going to mentor Kortney. We'll pay an extra $500 a month until that relationship ends. And here's the job duties. Do you want to do it? It's like.
Tom Kosnik [00:33:59]:
And of course they know, right. Because they're talking to other people within the organization. They know. Oh, gosh. So I moved from a recruiter to a team lead to a recruiting manager. Oh, I see how this works. So people that have aspirations, they want to do that. Overrides with recruiting manager.
Tom Kosnik [00:34:15]:
Not Prudenthenne. Not advisable to do that.
Kortney Harmon [00:34:17]:
Anything more you want to add on recruiting managers? You touched on them a little bit ago with the sales.
Tom Kosnik [00:34:22]:
Well, recruiting. Yeah, with the recruiting manager. Manager roles then. Yeah, same thing. It's. You would not pay them on their personal book. They're in their hands dirty. They're having close deals, candidates and all that.
Tom Kosnik [00:34:33]:
And then you pay them on the overall productivity of that team that they're managing. Are all my team members improving? Are they hitting their budget numbers if I've got new ones on board? Are they climbing up the gross profit increase scale? And then you simply have to build out a chart and then you aggregate it. Well, if everybody's hitting their numbers, their projected numbers, then they get 100%, they get x 80%, they get y 70%, they get z, you know, that sort of thing. We're recruiting managers. You could do quarterly bonuses as well. Clients love to see the lead recruiters, the recruiting managers. So, hey, we're going to pay you x to go on X number of calls with the sales team, for example. Again, you're just rewarding them to do the behavior that you want them to do that, you know, is going to lead to good stuff.
Kortney Harmon [00:35:23]:
Yeah, I love that. All right, so those organizations that have scaled, now they have branches. What about branch managers? I've seen a lot of them over the past and obviously they can look pretty different as well. What are some key factors to think about whenever we're thinking about compensations for them?
Tom Kosnik [00:35:42]:
Yeah. So you've got operational branch managers and then you've got selling branch managers. And again, does the branch manager have p and l responsibilities? Do they not have p and l responsibilities? So you're going to pay a branch manager, again, ideally you have some kind of a budget, you have some kind of a revenue gross profit target that they're chasing or that they're measuring against, but you're going to pay, obviously, the salary, you're going to pay a percentage of the gross profit. And then with the branch managers, you could pay them. If they have p and l responsibilities, you could pay them a percentage of their business unit contribution. So let's say I want that branch. Ideally, in a perfect world, you want 50% of the branches gross profit production to come back to corporate. So if the branch manager can deliver on that, you know, they make a quarterly bonus.
Tom Kosnik [00:36:35]:
If they deliver 52%, maybe they make more. 53%, maybe they make more. In a branch manager compensation plan like that, if you're paying them a percentage of gross profit, you're rewarding them on growing the business. And if you're paying them a percentage of business unit contribution, you're paying them to manage the business financially wisely, and then you can. Same thing like quarterly. Quarterly. Mbos are very effective in today's day and age. We are all a little add, so the quarterly things really work.
Tom Kosnik [00:37:04]:
Tom, this quarter, we need to get this done, this project done. We need to get this. We need to get into this, penetrate this account by accident, whatever it is, and then you can kind of figure out what kind of a dollar, back to whatever I said 25 minutes ago, where you got base salary, you've got taxes, benefits, you got this bucket of commission dollars. How much am I going to put towards business unit contribution, how much towards gross profit, how much towards MBO? That's where the financial modeling comes in with these things. Can I say something about corporate allocations, which branch managers hate?
Kortney Harmon [00:37:35]:
They might not like me, but I want to hear it. Yes.
Tom Kosnik [00:37:38]:
So most organizations would have some kind of a branch corporate allocation. We're going to, and I've seen anywhere from, like 3% to 7%. Most come in between, like, four and 5%. And so what they'll do is they'll take 5% of gross profit. It goes back to corporate. 5% of revenue, 4% of revenue. Companies will break it up in different ways, but you have to decide a lot of times. Branch.
Tom Kosnik [00:38:02]:
What branch managers say is that, oh, my gosh, the corporate. They're adding all these HR people because they went into California and they're doing this and, oh, my gosh, they bought a boat and the owner bought a boat. Why do I have to pay for that? And in your comp, you just have to be sensitive to that, and you have to decide. And this is just all in your modeling. You just have to decide, am I going to commission prior to corporate allocation or after corporate allocation? And it's all over the board. Kortney, I did a survey with, I don't know how many, 45 different staffing companies. Do you pay your branch manager gross profit, net operating income, both literally all over the board. It was everything.
Tom Kosnik [00:38:42]:
And back to the strategy of what we're trying to get accomplished here. You just have to be sensitive that anything that people are going to see as a ding, anything that people are going to see as a negative, a deterrent to them making money, you just want to get that out of your compensation plans. You want to reward them for growing businesses and hitting goals. If you've got a sales manager branch office, then that plan is going to be weighted more to the sales side. The mbos are going to be weighted more to the account penetration and the account acquisition side. They're probably going to have an inside partner in that branch that's running the fulfillment team. There may be some team bonus between the branch manager and the Ops manager. You can get really creative with as you're kind of hearing, I hope anybody on this call that's listening to this call is that use multiple sales levers.
Tom Kosnik [00:39:31]:
That's like a number one. Use multiple sales levers for this stuff.
Kortney Harmon [00:39:36]:
There's one other thing that's in my mind. Obviously, we know some mutual people, corporate assessments, how do those come into play for branch managers, area managers, so on and so forth? Because I'm thinking about all those assessments.
Tom Kosnik [00:39:52]:
Yeah, that's what I was just. Typically, the branch managers complain about it if they're getting compensated after corporate. So, hey, the other thing that you could do is instead of commissions, so you could pay a branch manager a percentage of gross profit, production of the branch hit and key, whatever key metrics, whether that's new client acquisition or whatever headcount increase, hours increase, however you manage it. But the other thing that you could do is pay them on net operating income. So pay them on net operating income prior to any kind of corporate allocation. And that just takes the whole issue off the table. Nobody needs to complain about anything. And then, hey, here's the other thing.
Tom Kosnik [00:40:29]:
I did this exercise, actually, with a group of people. You got to be constantly kind of on a side note with all these comp plans. And again, just because you have three different sales levers in that comp plan, it doesn't have to be complicated where like, hey, every week I'm pulling out a calculator to figure out how much money I'm making as a sales rep or recruiter or branch manager or whoever I'm talking about. But people, just senior management, it's got to constantly be asking people, do you know how you're being compensated explain to me how you're being compensated. Do you understand your comp plan? Because a lot of people, they get busy doing this. They get busy. Oh, Tom, focus groups. We do.
Tom Kosnik [00:41:06]:
Oh, hey, you know, I get a check every two weeks, and I have no idea why. It's $563.01 week, one every two, and $468.02 weeks later. I have no idea. So you want to always have the compensation plan, conversing with your employees to make sure that they understand how they're commissioned and asking those kinds of questions. I mean, they'll, sometimes they. Salespeople and recruiters are typically, are typically pretty forward about courtney, I expect a 10% increase in my wages. I have a friend that's a recruiter at Amazon. They're getting paid a 100k base and I'm getting paid 65k base.
Kortney Harmon [00:41:49]:
Yup. Absolutely. Well, you talked about executives, so let's jump up to vp and executive levels, because obviously, as people scale, those aren't something that people think about, necessarily. So let's think vps maybe that are a part of senior management, and obviously there's those vps that aren't responsible for anybody. So talk to me about those comp plans.
Tom Kosnik [00:42:10]:
Yeah. So vice presidents within the C suite, they're really responsible for the ultimate success of the organization, the ultimate financial success, EBITDA. So in those, in their plans, obviously they're going to be making a base salary, typically two components, one component and more, depending. But they're going to have an EBITDa target. So the company is going to hit, is established an EBITDA target, maybe 50% of their bonus is on accomplishing the EBITDA. So the C suite has got to work together to hit those numbers, and then maybe 50% of it is on mbos or key objective bonuses. And because the sales director is going to have sales manager, VP sales going to have one, the it person is going to have, the CFO is going to have something different. So you can individualize those based on, frankly, those key initiatives are tied into the sales, the strategic plan of the business.
Tom Kosnik [00:43:05]:
So you got a strategic plan, you've got key initiatives, and then you've got champions of each one of these key initiatives. And with the EBITDA, kind of the rule of thumb is that, look, if we don't hit at least 80% of our EBITDA, no commission, 80% to 90%, you get 25% of that target. Let's say the target is $100,000 for commission for an executive. So you got $100,000 commission bucket. 50,000 of that is for your EBItda bonus. So if we hit between 80 and 89, I get 25% of that 50 grand. 1250. If I'm between 91 hundred, I get 50, I get half of it.
Tom Kosnik [00:43:48]:
So I get 25,000. And then you do an upside. If I hit 100%, I get the 50 grand. Then if I'm 110, 120, then you 110 of the 50. So I could make potentially 60 grandd in that scenario, if we're 12% above, then I'm going to make another 20% of the 50. Typically it would top out at that point with sales reps, recruiters, branch managers, there's no cap. Like, hey, you build more gross profit, you're going to make more money. So the executive suite and then the MBO, the key objective of bonus, again, tai do these are like, we're moving to a new ATS system.
Tom Kosnik [00:44:21]:
So the it individual builds out a whole action plan on how to integrate into or how to transition into a. Into a new ATS system and which would include training and people up to speed and people at certain competency level on the platform. CFO may be moving into a new financial model. For example, VP of Ops, whatever VP of sales could be. Hey, we've got markets that are suck and wind. We've got to get these markets up and running. So those key objectives are going to be tied into the strategic plan and what you ultimately have them do, the additional thing that you could do. There's other components for the executive suite and which would include a deferred plan, either a qualified plan, which would follow the ERISA laws, an unqualified plan.
Tom Kosnik [00:45:08]:
There's insurance policies, Keyman insurance policies. So there are additional things that you can do for the executive level. The deferred comp plans. Those work wonderfully in terms of keeping people engaged and committed to the company longer term, whatever you want to call golden handcuffs or any of that stuff.
Kortney Harmon [00:45:27]:
So, yeah, the nice way versus the not. What nice way to say. So who usually calls the shots whenever you're thinking of executive level comp plans? Who calls those?
Tom Kosnik [00:45:37]:
Yeah, so, hey, look, if it's owned, if the business is owned by one individual or a married couple, they ultimately are the final decision makers. But many times companies will have a board of advisors, a board of directors. Those are two different things, by the way. And many times the board of directors, we've done jobs, compensation jobs, where somebody from a board that sits on a board of directors calls us up, finds us, calls us up and says, hey, we need you to do an analysis on five compensation plans for us, what's it going to cost? And off we go. Usually if it's a privately held business, no board of advisors, no board of directors that the owners are making it. And a lot of times you want to get, if you do have a board of directors, board of advisors, you definitely want to get them involved in looking at assessing, evaluating, asking questions, helping with the decision of go no go. Because what you can do back to that $100,000 target, some companies will say, hey, we're going to put 75% of that, $75,000 of that in the EBITDA component and we're going to put take 25,000 and put it into the key objective bonus piece of it. So just hearing from a board on why you would do that versus a 50 50 split and get more heads in the huddle on make, because these are big decisions, these are big comp.
Kortney Harmon [00:46:57]:
Plans, and this is a big process. So, Tom, how often should compensation plans be evaluated? Because this is time consuming.
Tom Kosnik [00:47:06]:
That's not a great question. 990. This comes from the Arnold group. 90% of the businesses in the United States make compensation changes every year. 70%. 70. 70% of the 90% make major compensation changes. So Kortney, the client base changes, the margin pressure, the competition, the technology, theres so much that changes year to year.
Tom Kosnik [00:47:37]:
Youve got to adjust your comp. What do you do in a scenario so 21 where the economy came roaring back and everybody set these super low budgets for their salespeople and their salespeople all hit their budget by April? Well, look, you got to reset those budgets because whats going to happen? Oh, I hit my goals. Theyre going to take their foot off the gas pedal depending upon what's going on in the environment, you can change your plan and you can adjust the plan halfway through the year. Guys, this plan's not working. We're making an adjustment, but you should evaluate it every year and tweak it against the business plan, against historical numbers, against the budget for going forward, and ensure that alignment. Ensure that you've got alignment. Some companies decide to sell off. Some companies decide, gosh, we tried that.
Tom Kosnik [00:48:27]:
Oh, Kortney talked us into having our recruiters do direct hiring contract at the same time. That was a terrible idea. Oh, let's forget that initiative. We're going to put a wall up and we're going to put direct hiring recruiters on that side of the wall and contract on that side of the wall, and then we're going to throw them sardines as they come in, we're going to have a fisherman kind of do a divide.
Kortney Harmon [00:48:51]:
I love it.
Tom Kosnik [00:48:52]:
Fun stuff. It's fun stuff. Hey, look. But here's the other thing, Kortney, that I want to say is that a lot of people, I hear this chatter, oh, making a compensation change is so disruptive. In New York, I would never. We meet companies that haven't changed their comp plan in 20 years. Wow, 200:20 years. It's not advisable.
Tom Kosnik [00:49:14]:
But when you make tweaks every year, when you revise and you have them sign. Right. Every year. Hey, this is the comp plan. This year, you sign. If you walk into an organization or manager, a C suite manager, and you walk into an organization that they don't have a history of making these changes. The first year, you make the change, you're going to get, you know, the mashing of the teeth complaining and all that stuff. The second year, you get a lot less.
Tom Kosnik [00:49:40]:
By the third year, the reps are coming to you after Thanksgiving saying, hey, when am I going to see what the new comp plan for the next year looks like? It becomes a cultural thing. And so how do you make an event that can be perceived as highly disruptive to the organization as, hey, this is how we do business around here. I'm not talking about in staffing industry. I'm not talking about the guy that was given 50% of his gross profit to the sales resource. I mean, we definitely had to fix that. So made two people very unhappy. I mean, you're going to lose people in that scenario. And I should just, real quick, I should say that you may have made a mistake in your early days, and you may have a compensation plan that's too rich.
Tom Kosnik [00:50:19]:
You probably are experiencing 25% natural turnover rates on the low end. Most of the industry, they turn over 40% of their staff every year. So, okay, I've got a superstar salesperson. I don't want to change that plan. Just grandfather that plan in for that individual and then for all the new people coming in. Helen, two years. Everybody except that one guys on the new plan. I can't just think it through.
Tom Kosnik [00:50:45]:
And again, the industry, they're people people. They don't want to fire people. Oh, I just. I just know Kortney's gonna close that big deal. She keeps telling. She's making phone calls. She's, like, taking people to lunch. She's going to the baseball games.
Tom Kosnik [00:51:02]:
Yeah. Anyway, the joys of managing a sales team, right? So with the high end producer like that, I mean, there's methodologies there's ways to do all this stuff.
Kortney Harmon [00:51:11]:
I love it. Tom, we've covered a lot of ground today. Thank you so much for sharing your wealth of information and your insights and letting me break it down parole with you today. So thank you very much for joining me.
Tom Kosnik [00:51:23]:
Hey, wait a minute. We didn't talk about how podcasters get compensated.
Kortney Harmon [00:51:28]:
Would love to.
Tom Kosnik [00:51:29]:
Hey, it's been a pleasure. I talk about this all the time. I got 30 years in the industry doing this week. So we hundred percent service the staffing industry and we do. We're the leaders. And it's not just me. I've got a handful of people on my team that help me with these that have years and years and years of compensation experience. We pull from multiple databases.
Tom Kosnik [00:51:47]:
We do jobs where we can find a specific job in a specific zip code and give you salary ranges, compensation ranges, total comp ranges, 25%, 50%, 75 percentile. We do the real deal compensation work in the industry.
Kortney Harmon [00:52:05]:
I love it. I love it. Tom, are you speaking at Staffing World?
Tom Kosnik [00:52:08]:
You know, I'm doing one of those breakout things, that 15 minutes breakout thing, and then I don't know if they released their speakers yet.
Kortney Harmon [00:52:16]:
Okay, well, I know people can check you out. We're going to include your LinkedIn profile and your website. So in case people want to ask more, you probably will see Tom on the circuit speaking or you'll see him at staffing World. I know I see him in Emma.
Tom Kosnik [00:52:29]:
Every year we will have a booth at staffing World. So a lot of times I'm not there, but my daughter and my wife are there.
Kortney Harmon [00:52:36]:
I love it and Emma's sweet. I've heard many wonderful things about your wife. So to our listeners, check out Tom and his work. I will include all of those in the show notes and thank you for joining us. And again, if you enjoyed listening to this episode, make sure you subscribe. Join us next time as we continue to explore latest trends, strategies, and insights in the world of staffing and recruiting. Until next time, thanks for listening to the full desk experience. I'm Kortney Harmon with Crelate.
Kortney Harmon [00:53:06]:
Thanks for joining us for this episode of Industry Spotlight, a new series from the full Desk experience. New episodes will be dropping monthly. Be sure you're subscribed to our podcast so you can catch the next industry spotlight episode and all episodes of the full desk experience here or wherever you listen.