Why Hays is the best run recruitment company in Australia

In October this year James Packer hosted the exclusive annual SEEK major client weekend at his family’s Ellerston Estate in the Hunter Valley, 2 hours north of Sydney. Given the sale of Packer’s interest in SEEK recently it’s a fair bet that it was the last such ‘knees up’ for the heavy hitters of the recruitment sector, to be hosted by the Packer family.

The invited guests arrived on the Friday. The biggest spending clients were allocated the luxurious guest cottages and the rest had to make do with more modest motel-style lodgings, normally the base of visiting polo players.

James Packer was an active host, playing the renowned Ellerston golf course (rated #4 course in Australia by Golf Digest) with a couple of lucky guests on the Saturday. Unsurprisingly, Paul Barry’s’ recently released biography of James, Who Wants to Be a Billionaire, was not a topic of discussion.

What was a topic of discussion on the Friday afternoon at the only scheduled business session of the weekend, was Australia’s best run recruitment companies. Discussion was full and frank but the two names that emerged clearly at the top were Hays and Talent2.

Hays Asia Pacific, lead by Nigel Heap since the mid 1990s, has proven itself to be an incredible profit-making machine. Even in the past 12 months when their Asia-Pacific net fees fell 20% to AU$290million, Hays still managed to generate an astonishing operating profit (AU$119million) to net fee ratio of 41%.

Even though I was not privy to the conversation taking place, it wouldn’t be hard to work out why so many CEOs would regard these two companies as benchmark companies in their sector.

How does Hays manage to produce a profit performance so far ahead of their industry peers? Some reasons might be:

1. Geographic coverage – 180 branches in 49 locations across South East Asia, Australia and New Zealand is well ahead of any competitor.
2. Recruiting cheap, inexperienced graduates and training them in the ‘Hays way’ – Hays rarely buys business through hiring experienced recruiters. The focus is on selecting ambitious, coachable, smart, young people and then indoctrinating them in the Hays way of recruiting. Hays employs 4 full-time permanent in-house trainers who ensure that a new Hays recruit is well on their way to above-industry-average billings and being a profitable asset for the company, by the completion of probation.
3. Low total-remuneration-to-salary ratio – Consultant salary costs will always be the highest expense item in a recruitment company P&L. The Hays method of paying low base salaries and then a low (most recently 10%) commission on all billings (perms) means that the more fee income an individual recruiter generates, the greater the proportion of each dollar that goes to the corporate pocket. This structure is the core of Hays’s profit making as most recruitment companies receive a smaller proportion of net income, the more an individual recruiter bills.
4. Home grown leaders who stay – CEO Nigel Heap and Marketing Director Jacky Carter are just two examples of Hays executives who have spent their whole recruitment career in the company. Only one of the eight Hays local senior leadership team started their career outside of Hays.
5. Growing organically – Buying rival recruitment companies for a premium has never been a Hays strategy. When Hays decides to enter a new market, it launches aggressively and sets its sights high. The Singapore Office, launched in late 2007, was producing over $1/2 million in fee income within 6 months and after 2 years in the Hong Kong market, Hays was already employing 40 staff.
6. Rigorous debtor control and management – Hays employ around 20 full-time credit control staff who are incentivised around the approximate $5 million in cash collection that they are individually responsible for. During the past 18 months, Hays has reduced average debtor days from 39 to below 30.
7. Legally aggressive in pursuing fees owing – In December last year, Hays took Queensland client, Motorline, to court for the disputed payment of a $6,500 temp-to-perm fee. Most other recruitment companies wouldn’t have bothered for such a relatively small amount. Not Hays. Not only did they win their case, adjudicated by the Full Bench of the Queensland District Court, costs were also awarded in their favour.
8. Legally aggressive with departing staff -A very curt solicitor’s letter is par for the course and further action will be pursued swiftly if Hays deems it necessary to protect its business interests. Early last year, Hays took two of its ex-consultants and their new employer, Charterhouse, to the Victorian Supreme Court and won the case seeking to have the restraint clauses in each consultant’s contract upheld (preventing them from working in the banking and finance recruitment sector for four months and from soliciting any client of Hays for a period of six months). The Court again awarded costs in favour of Hays.
9. Use of metrics to drive performance – Like all high-performing recruitment companies, Hays knows the importance of measuring and driving high-pay off activities. During the past 12 months, as the market has been hard hit by a slow-down in hiring, Hays didn’t reduce its expectations of individual activities. It just made small adjustments to the expectations it had of the outcomes to these activities.
10. Building niche markets serviced by specialist recruiters – Currently, Hays has 33 separate recruitment divisions, staffed by over 750 perm and temp recruiters. The Hays high growth philosophy is to keep individual recruiters clearly focused on their own specialisation. Once a recruiter builds their patch to a certain fee level, the desk is split in half for another recruiter to come in and create another profitable desk before it is split again, and so it goes. If you talk to almost any small niche recruiter, it’s rare if Hays isn’t mentioned as a major competitor.
11. Brand recognition – The first incarnation of Hays in Australia, Accountancy Placements, was established in 1976. They are like the IBM of recruitment – they may not be everyone’s cup of tea, but if you asked five random people in the street to mention 3 recruitment companies they know, I bet four of those five people would name Hays.

Hays may not be considered a sexy brand or universally loved, but they certainly know how to make money and stay relevant in a challenging, profitable and ever-changing industry.