Many business managers struggle to recruit the people they need. Understanding the dynamics of the Australian recruitment industry can help employers overcome the stumbling blocks to hiring good workers. Toby Marshall, Director of Abacus Recruitment Solutions, discusses this topic in his inaugural monthly recruitment column for CCH Australia.

Why do we routinely pay tens of thousands of dollars to commission-based recruiters who simply introduce a name and resume? Why does the recruitment industry itself — the same industry that promises you employees who will stay with you long-term — have a staff turnover rate of over 50%?

The country’s recruitment industry is currently worth about $10.2 billion and employs over 32,000 staff. It is a thriving and particularly buoyant industry. Yet, after some years working in this industry, I keep coming back to the same thing: this buoyancy and growth continues to be at the expense of Australian business. Let me explain why.

Scan the employment classifieds in any newspaper and it appears that recruitment companies have a pretty tight stranglehold on the talent on the market, right? Not so. Australian organizations have long been persuaded by recruiters that engaging a recruitment firm is the only effective way to find the talent they need in a market that is suffering from a (perceived) skill shortage and shrinking talent pool. In fact, realizing the way in which you outsource your recruitment and how this in itself may be damaging your business is the all-important first step.

Recruiters often fail to identify two large pools of talent that continue to go largely unnoticed: mothers with young children and older, semi-retired workers. As a recruitment specialist with over 17 years of experience and analysis of the employment market, I continually come to the conclusion that the structure and dynamics of the recruitment industry are fundamentally flawed, and that business is wasting millions in fees and failing to connect effectively with their ideal candidates. This issue of under-utilized talent is major and only one of the by-products of this very ineffective recruitment system.

It is, however, this very talk of dwindling labor and skills shortages that continues to detract the criticism from the ‘supposed experts’ who manage the search and selection process on behalf of many leading Australian organizations. The way in which recruitment firms currently operate hinders rather than assists the recruitment process. Until the industry adopts a more ethical and accountable framework, the economy will continue to bear the brunt. In an era where employee retention is a bone of constant contention for so many organizations, a quick-fix mentality driven by short-term results and measured purely by commissions earned and classified advertising space sold offers, in my opinion, no framework for optimal long-term results.

Consider this: recruitment firms only have access to a small percentage of the available jobs out there. In fact, many are not advertised or are ‘hidden’. Some experts estimate that up to 80% of jobs are hidden, as only 10% of positions ever make their way into the hands of recruitment companies. Given the proliferation of agencies vying for a share of the lucrative commissions, even the largest, most well-resourced recruitment firm has only 2% of the job market in a job seekers sector. But herein lies the bigger problem: because the job seeker is not the one paying the recruiters, he or she is not the recruiter’s number one priority. Recruiters, rather than looking to get maximum employee/employer match, are focused solely on grabbing the closest fit in the shortest possible time and scooping up the commissions. Ultimately, they are being rewarded for short-term success — not long-term employee retention.

What is it then that needs to be done to ensure the industry is more accountable, cooperative and effective for all stakeholders?

Companies need to take more control of their own recruitment needs. One way to think about recruitment is as an ongoing process that continually identifies and communicates with prospective employees and successfully markets their employment brand to them. Furthermore, recruitment firms do have a powerful role to play in partnering with HR and Australian businesses. But if recruiters refuse to share risks with their clients and continue to take a band-aid view of human resources, these problems will persist.

While recruiters must be prepared to develop long-term relationships with clients, clients too must commit to their recruitment firm and work long-term for the best results. Recruiters must be prepared to accept that fees should not be entirely up front — rather apportioned over an established period so the incentive is not only finding the right person but being rewarded for that person staying in that job.

Indeed, good recruiters can help employers avoid making costly mistakes. They know their clients and their corporate culture intimately, which means they can help identify the right person or people. Quality recruiters have access to in-depth market understanding, which means they can help a client develop retention programs to keep their valuable human assets.

Furthermore, once companies begin measuring the costs of employee churn, it is only then that they will realize the income lost to the inefficient recruitment system. While companies are not able to hire people, Australia is experiencing nearly 15% underemployment, according to the Melbourne Institute of Applied Economics & Social Research, University of Melbourne. As a result, companies are failing to harness the great talent out there. The damage to the economy is huge. In fact, it is estimated that the figure involved in unutilized talent coupled with poor performance as a result of job dissatisfaction could be as high as $15 billion.

There is, however, good news on the horizon. A recent survey by The Economist magazine found that CEOs believe the third-highest risk factor facing companies is attraction and retention of quality employees. CEOs and boards are finally realizing the need to get behind the issue of recruitment and retention.

The cost of finding and employing staff is having a huge impact on the bottom-line of businesses, especially when an employee was not ‘matched’ in the first place and then exits quickly. The revolving door starts again and employers are left footing the bill, while recruiters continue to prosper by the system. Research estimates that the cost of employee churn to a small business of 20 people is regularly in excess of $200,000 per annum.

I strongly believe that within the next five years we will see more of Australia’s Top 500 companies demand a shift to a Fee for Service recruitment framework — with the main change being a large part of the fee based on employee retention. Essentially Fee for Service works because recruitment agencies share the risks with their clients; the way it should have always been.