Headhunters get the ax

As companies cut back on hiring, fewer job openings are reducing the demand for recruiters.
By Jessica Dickler, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) — In another sign of a weakening job market, headhunters are scouting out jobs — for themselves.

Nationwide, only 3.5 million people were added to payrolls in November, vs. 4.2 million in the previous month, according to the most recent Job Opening and Labor Turnover Survey. With far fewer openings out there and companies trying to cut costs from every angle, demand for recruiters is drying up.

“The industry is facing some serious challenges,” said Paul Bernard, a veteran executive coach and career management adviser who runs his own firm.

Last week, Google (GOOG, Fortune 500) announced it was laying off 100 in-house recruiters in response to its reduced rate of hiring in the current economic climate.

“Given the state of the economy, we recognized that we needed fewer people focused on hiring,” Laszlo Bock, vice president of people operations, wrote in a post on the company’s blog.

In most cases, a recruiter or headhunter is hired by a company to fill open positions. Recruiters are then paid a hefty hiring fee, which is typically 25% to 35% of the first-year salary of the new hire. Some companies keep recruiters on the payroll, as is the case at Google, to fill positions as they become available.

But as the job market tightens, companies are finding it harder to justify those steep costs.

“The situation is really quite bad,” admitted David N. Schwartz, head of executive search firm DN Schwartz & Co in New York. “There are very, very few retained searches out there at all,” he said, referring to companies paying headhunters to fill open positions.

Schwartz, who focuses primarily on the financial services sector, said that after nearly 16,000 people lost their job last year in that industry in New York alone, “no one is hiring.”

Even in other industries that are still growing despite the recession, such as healthcare, more employers are relying on networking or online postings to circumvent steep recruiter fees. “The traditional avenues of hiring are completely gone,” Schwartz said.

A new route for recruiters
In order to stay in business, headhunting firms are going to have to be creative, Schwartz suggested. And that means focusing less on hiring and more on other services like coaching and career development.

Paul Bernard says he has received a lot of calls recently from recruiters trying to find employment as career coaches.

But in addition to restructuring their roles to adjust to the current job market, headhunters will have to drastically cut their fees, he said, to meet other companies’ cost cutting goals.

“It seems like we’re working twice as hard for half as much,” said Dave Sanford, the executive vice president of client services for Winter, Wyman, a staffing firm based in Waltham, Mass.

But headhunters can still play a crucial role in today’s market, Sanford said. Job openings, while few and far between, now solicit thousands of responses, bombarding employers with too many choices.

“Because everybody is so hungry they’re jumping on everything that’s moving,” Sanford said. “That excellent candidate is buried under 999 other ones.”

And that’s where a recruiter becomes almost a necessity, because of their ability to sift through applicants. “What we can do is really go out there with a very specific rifle shot in the marketplace,” said Sanford.