Building a Contingent Rate Card That Works

Presented by Ron Hetrick, Dir. of Labor Market Analytics/Chief Economist, Allegis

Group Services

May 23rd, 2013

Ron Hetrick brings 20 years of labor force economic experience to AGS. Primarily, Ron works with companies across different industries as a site selection and workforce planning consultant and specializes in rate card development and management having benchmarked close to 20,000 job templates representing well over 300,000 actual placements. He also provides economic analysis for the long-term strategic growth of Allegis Group and its operating companies. Prior to working for Allegis Group, Hetrick spent nearly eight years as an economist with the Bureau of Labor Statistics in Washington, DC. Supervising the Current Employment Statistics survey. He has published articles on labor trends for the Monthly Labor Review and various industry trade magazines and continues to write white papers on rate card development and rate philosophies.

Ron Hetrick, Allegis Group

Agenda

I. Starting the Process II. The Structure of a Card III. Benchmarking Rates IV. Factors that will Effect the Future

of Rates

CWP Mission Statement

• Mission: Our mission is to foster our individual member’s learning through the sharing of knowledge, best practices, experiences, lessons learned and by engaging with industry experts and thought leaders.

• Purpose: Our goals are to enhance the professional capabilities

and skills of our individual members and to bring value to the overall contingent workforce management industry.

• Who we are: CW Professionals is a Professional Association of

contingent workforce and strategic sourcing professionals working in multiple industries.

Governance

• Steering Committee – Bay Area – Mark Murphy, Agilent Technologies – Wendy Barnard, Charles Schwab – Verdis Baldridge Kaiser Permanente – Greg Johnson, Blue Shield of CA – Janice Urban, Oracle

• Steering Committee – Houston – Holly Olszewski, BMC Software – Nandita Joshi, Shell – Mike Pruente, ConocoPhilips – Kanita Harris, Halliburton

I: Starting the process: rate philosophy

“Hiring is like a river. If you pollute the freshet [watershed], it pollutes everything downstream.” – Herb Kelleher Low Bill Rates High Bill Rates

Long time to fill Poor quality candidates

Short time to fill High quality candidates

Do you want to be the employer of choice or employer of last resort?

I: Starting the process: Your data

When we start building a card we always require all of the existing placement data we can find. What are we looking for?

Average durations Distribution of fills/presence of levels Average of current rates against any existing rate guidance Locations Volume Special pricing agreements

What is an acceptable duration? Co-employment should not be the determining factor in setting a contract’s length. As long as the contracting firm remains active in its oversight of a contractor and the hiring firm has clearly specified its eligibility for internal benefits, co-employment should never be an issue.

Long durations and co-employment

Most assignments of a non-professional nature tend to be from 3-6 months. So, should you ask for a tenure discount? Positives: Savings Negatives: Suppliers may adjust their behavior on the front end. Punishes all up front aggressive pricing as no supplier is ever sure that a person will not be extended. Solution: Do not do a blanket, all skill set reduction. Have great benchmarks before implementing.

Long durations and tenure discounts

What your current fills can tell you

Ineffective and unrealistic rates create negative consequences:

Avoidance – SoW Template “hi-jacking” Rate creep

Did you know?

In a 5 level system (entry to consultant) the normal percentage of those filled at the first 2 levels: Developers 19% Business Analysts 32% Graphic Designers 64% Help Desk 85%

Variance between market pay rates can be substantial. San Francisco 96,936 Seattle 88,255 St. Louis 81,413 Charleston 76,122

Mechanical Engineer 8 yrs exp. (Source: ERI)

In general, market graded rates save about 5-10% per grade

16% difference

Locations – Are you in completely different types of market?

It is the nature of almost any business that the more volume someone gets the more they should be flexible on their price. We have found that staffing firms will give the most consideration to: - small number of competitors - possibility of being in a 1st tier - easy to obtain and repeatable skill sets - opportunity to gain access to more business units either geographically or by skill set

Volume or special pricing agreements

II: The structure of a card

An effective rate card needs the following elements to work most effectively:

- Non-redundant but clear titles - A correct number of levels - Location grading - Job descriptions with all key elements included.

Card structure: Proper Job Titles

Software QA Engineer

Test Engineer Tester QA Analyst Etc…

QA Test Analyst

What are the benefits?

Every job does not need the same number of levels but nearly every job should have some number of levels.

What are the benefits?

Help Desk – 3 levels Receptionist – 2 levels Business Analyst – 4 levels

Suggested:

Card structure: Optimal Levels

Card structure: Location grading There is rarely ever an instant where every single location a company has should have their own rates. Locations should be grouped.

What are the benefits?

What is optimal? By metro area (40 minute drive time) Small number of groupings

Card structure: Job Descriptions There are 4 key elements to a good job description:

What are the benefits?

Summary – Short and clear

Responsibilities – Don’t oversell

Skills – Always list required in own section

Education/Experience – Verify the relevance

III. Benchmarking Rates

One of the most difficult aspects of bill rates that companies struggle with is that there is no such thing as THE bill rate: - Fluctuating labor pools - Different burden structures for suppliers - Different hiring priorities/backgrounds - Different problems to solve - Different company reputations

Benchmarking rates: What can make your rate higher than market • Short assignment durations • Immediacy of need • Niche requests in otherwise standard job

templates (industry exp., platform exp.) • Small name in a market/skill set where

employer brand matters

Benchmarking rates: Pay rates

In mark-up situations, companies often need to benchmark pay rates. There are many pay rate tools each with strengths and weaknesses. Here is what we have learned: • For low end jobs you can typically pay in the lower

percentiles • For higher end jobs (top levels), you typically are

paying at the very highest percentiles. Best to look at it like quasi-executive search.

Benchmarking Bill Rate Data

Benchmarking contingent staffing bill rates is much more difficult. You basically have several options: • Bill rate tools (Peopleticker/Specifics, etc.) • Your VMS, MSP, large systems integrators that are

supporting you. • Supplier solicitations

What are the strengths/weaknesses of these?

Industries with niche positions: • Oil & Gas • Healthcare • Finance/Capital Markets

Benchmarking niche jobs

Our approach is threefold: - niche positions have a lot in common and therefore nothing is completely unique - ratcheting up bill rates until you see the candidates you are hoping to see - understanding the upper limit before recognizing when someone needs to come in as a consultant (SoW) and forcing them to pass knowledge. <Do you have an exit plan for formers?>

Logic checking your card

We use several terms when building rate cards. Feel free to invent your own:

• Splits – is there a proper amount of difference between levels?

• Relative variance – is there a proper amount of difference between different jobs of varying complexity?

IV. Factors that will affect rates in the short term No matter how hard you try, your rate card, from the second it is created, will be based on historical observations. What will change things:

• Economic changes • Statutory cost changes (SUTA/FUTA,Workers Comp) • Migration patterns (demographic changes)

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IT staffing

IT Systems Design is the biggest employing industry if IT workers. IT has added 265K since its trough in late 2009. There is no doubt that IT workers are being consumed.

IT Outsourcing employment is soaring

Occupational Pools Can Fluctuate

Key unemployment rates Low High Current OTY Change Management 1.4 5.3 3.1 -0.7 Business and financial 1.7 6.8 4.6 0.2 IT 1.4 6.5 3.0 -1.3 Engineering 1.0 9.6 3.8 -0.2 Sales 4.0 10.2 6.9 -0.7 Admin/Clerical 3.4 9.4 6.9 -0.7 Production 4.7 16.3 8.3 -1.1 IT is not the only skill set grouping to see tightening conditions. In fact, everything is tighter except for certain professional skill sets. Even those have experienced month to month problems.

Working on cutting edge products with cutting edge technology

Company name and reputation developing desirable candidates

Flexibility on work location, work dress, etc…

Tangible culture, exciting, working on this project means something

Defensive Plays What highly skilled workers want

Speaker Contact Information Ron Hetrick

Allegis Group Services, Inc.

Questions

Thanks!

Ron Hetrick Director of Labor Market Analytics

Allegis Group Services, Inc.