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The Best Reasons To Pay A Retainer To A Search Firm

Should You Pay A Retainer To An Executive Search Firm - Kennedy Executive Search

If you want to be sure to find the best talent in the market available, there are many advantages going through an executive search firm (click here). Especially for the executive search firm.

Be careful though as barriers of entry to the recruitment industry are low, the title “headhunter” is not protected and the market is thus very heterogenous. Anyone can run this business with a phone and business cards and no further investment, even from home.

There are many dos and don’ts when working with us. One which I found little on my research, however, is the question if you should you pay a retainer to an executive search firm or work on a contingency basis.

Let us have a look at the three fee models to work with an executive search firm or recruitment agency:

  1. On a success fee/ contingency basis without exclusivity which means what it says: unless we find a solution for you (=you hire our candidate), you don’t owe the recruiter anything. In addition to that, the recuiter’s competitors work on the same assignment. Commitment from both sides is therefore minimal.
  2. On a success fee/ contingency basis with exclusivity: things look slightly better for you and also for us. The exclusively clause shows the commitment from the client and the recruiter that they plan to go to the end with this. If they do and the candidate has signed the work contract, the recruiter has earned his fee.
  3. Retained: the client pays in typically three installments or retainers, the first one when he gives the search assignment to the executive search firm, the next one when we present our short-list of candidates/ after XYZ days (both models coexist) and the remainder when the chosen candidate has signed the work contract with you. This form is the normal approach for the recruitment of senior or very complex profiles as they may require in-depth, tailor-made work from the executive search firm.


What is the impact of these three distinct fee models – for YOU as a hiring Manager?

Whenever two parties make a deal, the decision will be based on one of the four buying signals which are 1) quality (Mercedes or Toyota?), 2) service (five or two star hotel?), 3) speed of execution (a book at my local bookstore now or 10% cheaper on the internet but only in two days) and 4) price (no example for you, as a client who chooses based on price only is a sad, sad story…).

How do these four points link to the fee structure of an executive search firm? Let’s have a second look at the three fee models and bring them together with the buying signals here above:

  1. Success fee/ contingency basis without exclusivity: I have read of this before as “you eat what you kill” meaning that the recruiter does not earn one cent before the candidate has signed a work contract with the hiring company. Furthermore, external competitors, internal candidates, a strategy change/ hiring freeze or else as well as unsolicited applications might get in the way. Time is the biggest enemy of the recruiter and the most important criteria for him will be speed as there are too many unforeseen circumstances that could spoil the deal. Though high speed can be a good thing, quality and service will be compromised if you choose this way to work with a recruiter. The recruiter knows that he probably won’t “make the placement” anyway as the “fill-ratio” for this model is 20%. As a client, you will therefore get the candidates who are currently available yet not always the best solution for your problem.
  2. Success fee/ contingency basis with exclusivity: The recruiter has eliminated one in minimum four “enemies”: his competitors. The commitment from both sides is higher and the recruiter can have realistic hopes to earn his fee. He is, however, not immune against internal candidates, a strategy change/ hiring freeze or else as well as unsolicited applications. Speed will still win over quality or service: a candidate who is second best but presented today is still better than a potential A candidate we will only meet next week. Fill-ratio is approx. 80% if you work with a professional, ethical recruiter who understands his job.
  3. Retained: This form of partnership offers the highest commitment from both sides. A recruiter or an executive search Consultant who works on a retained basis is paid one part of his fee upfront and has secured his running costs. Whether he presents his short-list today or in two weeks will not be the criteria to include or exclude candidates. Quality and service will be and neither one will be compromised for speed. As a client, you will normally get access to a broader pool of candidates as we will not only consider CVs in the database or applications from candidates currently on search (which is not always the best moment to change, see “The Five Phases Of The Job Life Cycle”). We as headhunters will build a cartography of target companies we have defined together and approach these in a systematical and structured way. As a consequence, many of our candidates are exclusively listed with us, not actively on job search and you could never meet them without us. Our fill-ratio can be up 95% if nothing unforeseen happens when we have been retained.


Conclusion:

Thanks for reading to the end and yes, this was a commercial text in a way. But I also wrote it to explain that what may seem good to a customer at first sight (=”take no risk and do not pay anything upfront”) will not ensure that you get access to the best talent available. On the contrary, you even run the risk of having a mediocre staff structure mid-term. And you need top talent to achieve your budget this year, right?

Ask yourself which of the four buying signals quality, service, speed or price will be the one you build your future team on and decide yourself. And if you opt for number 3, we are there for you!

Jorg Stegemann
Jorg Stegemann - Headhunter, Certified Coach and Business Writer - is head of Kennedy Executive Search. Apart from running Kennedy's company blog, he writes for Forbes, BBC and other media.
  1. Brian Reply

    Excellent summary, especially for lone recruiters. Appreciate your insight based on your experience as well. Thank you.

  2. Finn Reply

    Hi Jorg,

    I can 100% back up about your conclusions. Well done. I started in this business in 1991, and have never accepted “no cure no pay” conditions. I turn it arround: “No pay no cure!!”

    Besides: as executive search / headhunter, the focus should be concentrated of the TCO the client get when he get the best head in busines on board.And reverse, what will it cost in lost revenue and profit to his company if he not reach his budget / target.

    • Jorg Stegemann
      Jorg Stegemann Reply

      Hej Finn, thanks.

  3. Srinivasa Reply

    A retainer fee undoubtedly firms up the commitment of the Consultant and also ensures the seriousness of the client organisation in fulfilling a particular search mandate…Moreover, there are other forms of search viz., Contained Search and Delimited Search. Contained Search is a combination of Contingency + Retained Search, where the agency is paid 1/3rd of the fees when commencing the search and balance gets payable only when the candidate joins on board. In Delimited or Engaged Search, the agency is paid a portion of fees when the mandate is awarded and this becomes 100% refundable when the agency/ consultant is unable to deliver the service within agreed time frame.

  4. Tom Reply

    Excellent explanation. Thanks for doing it. We add an additional factor for choosing search…ROI. While not popular, the only reason to have employees is to increase profits, enabling a company to grow and expand. We work with our candidates to make sure they understand that, and know how to translate their skill sets and accomplishments to an impact on ROI.

  5. Malgosia Reply

    Hello Jorg,
    Thank you for your time to write down this explanation. As you wrote there is no entry requirements to become a recruiter or headhunter and that is why lots of people who want to stay in a business or start their job here agree on success fee without exclusivety (and by the way give no real guarantee to their service). The idea I follow beeing now 10 years in the business is focus on relationships and base growth on recommendations. I admit it limits a pool of clients but gives space for high quality work with a safety of my income (no not paid invoices). Besides when recommended I go to the company through back door and do not have to compete with anyone for the placement only with a market for the best candidate.
    Malgosia

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