The great recruitment fees squeeze

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Faced with an enemy in their midst which appeared to be threatening their fees, recruitment companies in the construction sector formed a quick cartel to fix prices.

This option is not available in the fragmented City recruitment market. "It's way too competitive and diverse," says the head of one large financial services recruiter. "Even if we wanted to do that kind of thing, we wouldn't be able to."

Financial services recruitment firms certainly have reason to want to protect their fees. Banks started squeezing them down when hiring fizzled out in 2008, and are continuing to do so now that hiring's come back. The desperation of some recruiters, which are clinging to survival, isn't helping matters.

"Some banks are only now trying to put reduced fee agreements in place," says the head of another firm. "This is strange given there's now a lot more competition for candidates."

He says banks' fees squeeze includes attempts to deny the existence of guaranteed bonuses. In their absence, recruiters are being paid a percentage based on base salary only - a trend that won't be helped by the FSA's ban on multi-year guarantees. At the same time, desperate recruitment firms are lowering their prices to 15% of a candidates' pay.

In the good old days, search firms charged 33% of a candidate's total first year comp, payable in three tranches - on commencement, after 30 days and after 60 days.

Nowadays, headhunters and contingency firms say they're a lot more flexible. "It all depends on how much volume you're being given - a big bank that's doing a lot of

hiring might be charged around 20%," says the recruiting executive.

"There's certainly been margin erosion for the whole financial services recruitment market over the past 12 months," he adds.

There may, however, be exceptions to this rule. The head of another recruitment firm relates the case of one senior headhunter who's apparently paid a flat fee of 25k for the 'initial approach.'

"The bank knows who they want and they need a third party to approach them. They will therefore pay her the fee to make the introduction," he says.

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