Recruiter Compensation: Best Practices

Recruiter compensation plans often depend on the type of recruiter.

For instance, an organization might outsource recruiting to external recruiters employed by an agency, or they may have a dedicated recruiter in-house/

Like sales reps, external recruiters are typically paid according to their performance. They receive a base plus commissions and other incentives when they fill open positions or their new hires complete their probationary period.

By contrast, the compensation structure for internal recruiters does not include a variable pay component. However, regardless of the type of recruiter, the compensation structure is essential for attracting and retaining top talent.

Designing effective recruiter compensation plans requires balancing short-term and long-term incentives. Otherwise, agents will likely focus on filling roles quickly without considering the long-term impact of hiring the wrong candidate.

Selecting the right metrics to measure success can motivate behaviors that fail to drive outcomes aligned with organizational goals. For instance, the number of hires may not accurately reflect the quality of a candidate or the recruiter’s impact on team performance.

Of course, compensation plans should be fair and equitable across recruiting teams and roles to ensure retention, while remaining competitive ensures attracting and retaining the best talent.

Not sure how to achieve this balancing act? We’ve got you.

This blog provides best practices for creating a competitive and motivating recruiter compensation structure.

Key Components of a Recruiter Compensation Plan

Let’s start with the must-haves of a competitive and motivating recruiter compensation model.

Base Salary

Setting a recruiter base salary is also a balancing act. If it’s too high, agents will not be motivated to achieve their targets. On the other hand, a low base salary may be less attractive as it offers less income stability, which is especially important for candidates paying mortgage or loan payments.

It’s also essential to consider market and industry data to ensure your salary is aligned with competitors to attract top talent to your organization.  For instance, our research revealed an average recruiter salary of $95K for tech or SaaS in the United States. 

Commission Structure

There are various commission models, including flat rate, tiered, and accelerators. 

• Flat rate: Also known as single-rate or fixed-rate commission, this is a set percentage of the sales price paid on each deal. The rate doesn’t change, regardless of the amount or quantity of sales, making this model easy for reps to understand.
• Tiered: A tiered commission structure includes two or more tiers, with the commission rate increasing as the volume or quantity of deals increases with each tier. This model has many advantages. It increases sales team motivation, improves rep performance, and aligns sales agent behaviors with business objectives. A tiered commission model is also a cost-effective way to reward reps who exceed expectations.
• Accelerators: An accelerator is a sales model that rewards agents who achieve designated milestones, such as hitting 100% of quota. This bonus can take various forms, including a flat fee, a non-cash reward, or a higher percentage payout. Accelerators can effectively motivate agents to close more sales while helping attract and retain top talent.

Bonuses

There are also various types of bonuses such as sign-on, performance, and team-based. 

• Sign-on: A sign-on bonus is a one-time payment or stock option an employer offers to motivate a candidate to accept a job. They are often used to attract and hire top talent in a competitive market.
• Performance: Performance bonuses award sales agents a fixed dollar amount for specific behaviors or achievements. For instance, a $200 bonus payment for each deal closed, for each percentage point attained above 100% quota, or for meeting or exceeding a designated target. Performance bonuses are effective motivators.
• Team-based: Team-based bonuses reward the entire team for overcoming specific challenges or hitting their collective targets. This bonus structure fosters teamwork.
  

Incentives

Other potential incentives include: 

• Stock Options: Stock options are incentives included in compensation packages, especially at startups. A specified number of shares are granted with a designated date in the future when the employee will be fully vested and able to sell the stock, thereby exercising their option.
• Equity: Equity is another way to pay employees with company shares or other ownership interests instead of cash. Stock options include restricted stock, stock appreciation rights (SARs), and employee stock purchase plans (ESPPs), which allow employees to participate in their company’s profitability.
• Perks: Perks are non-cash incentives offered at the company’s discretion. Examples of perks include paid time off, free food, professional development opportunities, and on-site childcare.

Best Practices for Recruiter Compensation

Leveraging these best practices will help you build an effective recruiter compensation plan.

•  Alignment with Company Goals: Ensure the compensation plan supports overall business objectives.
•  Market Competitiveness: Conduct regular market research to maintain competitive compensation.
• Transparency and Communication: Clearly communicate compensation expectations and criteria.
• Performance Metrics: Define measurable KPIs to evaluate recruiter performance and trigger compensation.
• Flexibility and Adaptability: Design a plan that can be adjusted to changing market conditions or business priorities.
• Reward Quality, Not Quantity: Focus on metrics that measure the quality of hires, such as time-to-fill, employee retention, and performance.
• Balance Short-Term and Long-Term Incentives: Offer a mix of base salary, commissions, bonuses, and other incentives to motivate recruiters to achieve both short-term and long-term goals.
• Provide Opportunities for Growth: Offer career advancement paths and professional development opportunities to retain top recruiters.
• Recognize the Unique Challenges of Recruiting: Acknowledge the specific challenges and demands of the recruiting role, and tailor the compensation package accordingly.

Example of a Recruiter Compensation Plan

External recruiter compensation plans vary greatly with recruiters earning incentives on a percentage of revenue generated and based on an individual being hired.

One thing we’re noticing is an increase in recruiter fees, including 10% of a candidate’s salary for easier-to-fill roles, and as high as 50% for more difficult-to-fill hires. The recruiter then earns a percentage of that revenue depending on their revenue goal, with commission rates ranging from 5% to 20%.

Recruiter Compensation Plan Example

Quota: $700,000 of revenue per year

On-Target Earnings: $120k per year

Base Salary: $60k per year

On-Target Variable: $60k per year

Commission Structure: A cliff that holds 0% commission until the recruiter generates $60k in revenue, then increases to 8.60% commission on all revenue sold after that.

Please note that the recruiter doesn’t earn a commission under this plan until they generate $60k of revenue to cover their base salary. This plan also includes a monthly recoverable draw on projected commission.

Executive Recruiter Compensation Structure

Next, let’s look into executive recruiter compensation structures. Given the importance of these roles, recruiters are often rewarded more, and trends suggest they are earning more than ever.

• Performance-Based Pay: The rise in performance-related compensation is the main driver behind increasing total compensation in the executive search industry. Performance-based incentives, such as fees tied to the number of searches completed or revenue targets, play a significant role in overall earnings.
• Shift in Pay Structure: For less experienced recruiters (zero to five years), compensation structures have shifted from base salary plus discretionary bonuses to more performance-based models. This includes bonuses tied to search completions or achieving certain thresholds, which incentivizes high performance.
• Compensation Breakdown by Experience:
  • Recruiters with less than five years of experience earned an average of $126,505 in 2022.
  • Those with six to 10 years of experience saw total compensation rise to $250,872.
  • Executive recruiters with over 11 years of experience earned an average of $446,841.
• Compensation Based on Revenue Performance:
  • Recruiters generating over $1.5 million in revenue earned an average of $590,714.
  • Those with $1 million to $1.5 million in revenue earned $486,125.
  • Lower revenue tiers earned significantly less, ranging from $103,840 to $242,500.
• Collaboration with Venture Capital and Private Equity: Increased collaboration between executive search firms and the venture capital/private equity sectors has created more lucrative opportunities, such as equity-based compensation for recruiters working with startups.
• Base Salaries: While total compensation has increased, base salaries have remained relatively flat, with

Retained Search Firm Fees

Retained executive search firms are known for complete and extensive candidate assessments, and prioritizing quality candidates, best suited for long-term executive roles Retained search fees are usually one-third (33%) of the candidate’s first-year total cash compensation, including the base salary plus projected bonuses.

Large retained executive search firms typically charge fees starting at $100-thousand dollars. These firms need to earn six figure fees to cover their global overhead. Therefore, it’s common for them to refuse searches for roles with total cash compensation of less than $300 thousand

These firms also charge for the cost of direct search-related expenses such as travel. Some firms increase their fee by 10%-15% to cover administrative costs that cannot easily be tied to a specific search. So instead of search fees of 33%, the engagement can cost 38% including administrative costs.

Instead of charging per-project fees upfront, retained search firms secure a contract to focus their efforts on locating the ideal candidate to fill the desired role. Clients are then charged in three equal installments at 30, 60, and 90 days, once the chosen candidate is successfully hired or at performance milestones.

Learn How QuotaPath Automates Recruiting Compensation

Recruiter compensation details how agents are paid. External recruiters employed by agencies typically receive performance-based pay consisting of a base salary, incentives, and bonuses.  

A well-designed recruiter compensation plan is essential for attracting and retaining top talent. Leveraging best practices like alignment with company goals, completing market research, and clearly communicating compensation expectations and criteria will help you build and maintain competitive recruiter compensation.

To create a seamless experience from comp plan creation through commission payment, learn how QuotaPath supports recruiter compensation plans. Schedule time with our team, or sign up for a free trial.