By Nad Elias, HT Staffing Managing Partner
Hiring a headhunter can be a confusing and intimidating process. How do you know when to pursue help from executive search firms, and how much money and resources should be invested? This blog post decodes the process of using headhunters, comparing and contrasting the three main search engagements most commonly used by executive recruiters: contingency, retained and container.
First, the decision to use executive search firms hinges on expense versus value. That value can be mostly attributed to two factors: speed and quality. Conducting a thorough executive search requires access to significant internet search tools, databases and related resources often valued at tens of thousands of dollars. Matching these resources internally is rarely cost effective. What’s more: practice makes perfect. Think of working with a recruiter as a way of renting expertise, resources and, perhaps more importantly, access to hundreds of passive candidates through personal networks that have often taken years to build. It gives you the power to ”borrow” access, efficiencies and connections, which often results in a superior, quicker hire than could be achieved without utilizing a third-party recruiter.
Second, you’ll need to decide what type of search engagement is appropriate. Below, we decode the three main types of search engagements.
A contingency search is usually a non-exclusive, transaction-based engagement in which headhunters may compete for the opportunity to fill a client opening. Fees can range from 20 to 30 percent of the candidates’ first year salary. This type of search is usually conducted for highly skilled professionals with salaries under $100K, such as software developers and engineers (not C-suite executives). Contingency searches are best for high-volume hiring, when a company is hiring several positions with the same job title; think of it as throwing a wide net and seeing what comes back.
For this reason, contingency searches are common for fast-growing startups and companies needing additional employees as revenue and work load grow. Since payment is contingent on the right hire, however, the search process can be fast and furious, so companies embarking on a contingency search need to have enough bandwidth to devote to the process.
What does this mean? Recruiters need quick responses and quality participation from the client in order to stay motivated. Keep the carrot in front of them, and recruiters will continue searching for great candidates. Lose focus, and recruiters will understandably lose confidence that you will act upon and hire who they present, which is the only way they’ll be compensated.
At the other end of the spectrum is the retained search: a mutually exclusive arrangement between the client and executive search firm. With a retained engagement, the headhunter becomes a part of your “team” and receives payment throughout the search process. The fee is usually based on 25 to 35 percent of the candidates’ first year salary, usually paid in three installments: One-third when the relationship is established, one-third when candidates are presented, and one-third when the position is filled.
This type of engagement is ideal for executive search at the senior management and C-suite levels for both large and small businesses alike. Retained searches are more confidential and focused than contingency searches, which can be imperative when a limited number of qualified candidates are available. While retained searches are less flexible, the recruiter carries much more weight or power. Instead of it being about what your headhunter knows as far as job boards and databases, it’s about who your headhunter knows.
A new type of engagement has emerged in the past 10 years called a container search. This type of engagement is a hybrid of contingency and retainer searches (which explains why it’s also been dubbed a “retingency” search). A container search requires both a retained flat fee to start a search and a 20-30 percent contingency fee upon placement. In certain cases, this type of structure presents a win-win for both parties involved: incentive with reduced risk for the headhunter at about the same cost as a contingency engagement for the client.
A container engagement can be ideal for searches conducted in highly competitive markets/fields. Depending on the size of a company or the nature of the position being filled, a container search is appropriate for any level position, up through C-level. Just as it is in a retainer relationship, the skill level of the recruiter is critical to the success of a container relationship. The upfront fee ensures the relationship is exclusive in some way, so it’s very important to consider the experience, reputation, connections and resources of your headhunter. By agreeing to pay part of the fee up-front, the company can be confident that it will have the fullest engagement of the recruiter.
Whether contingency, retained or container, there’s an engagement level for every business with the bandwidth and need for executive search assistance. Still afraid of deploying a headhunter yourself? Tell us and we’ll decode the process even further.