Navigating Executive Search Firm Selection
1. Review the Level and Importance of the Role
If the executive-level opening is a C-level role such as Chief Executive Officer (CEO), Chief Financial Officer (CFO), or Chief Technology Officer (CTO), the best choice is usually retained executive search. The same goes for Executive Vice Presidents, Senior Vice Presidents, General Managers, Managing Directors, and — usually — Vice Presidents.
Retained search firms focus exclusively on board and senior executive-level positions. When a role is senior enough, it is usually important enough to invest in retained executive search. Consequently, if hiring the right candidate for the position could have a material impact on your company’s ability to succeed, a retained search firm is usually the best option — with a few caveats.
Is Your Company Large Enough or Well-Funded Enough?
One caveat to selecting a retained search firm is that your company must be large enough to afford the fee and to warrant having a senior-level role in the first place. Retained search fees often exceed $100,000. What’s large enough? Usually, it’s companies with revenues of $100 million or companies that have funding to pay for a retained search, such as later-stage venture capital firm startups.
2. Determine What Executive Search Firm Types You Need
4 kinds of firms that can help you fill executive-level roles. The type of search firm you select will help determine what your executive search will cost.
- Retained Executive Search is the most expensive, and usually the option for senior executive search.
- Contingency Search Firms are less expensive than retained search firms, yet they rarely tackle important senior executive searches.
- Hybrid Retained-Contingency Firms split the difference and may, therefore, be better suited for entry-level executive roles, such as Vice President roles.
- Executive Search Research Firms offer companies the opportunity to save with a focus on passive candidates, similar to that of retained search.
Retained Search Firms
Retained search firms are the gold standard for senior executive-level roles that are important to a company’s success. Retained search firms work by retainer, much like attorneys who are paid retainers. And like attorneys, they are paid regardless of the outcome. In other words, you may decide not to hire any of the candidates that the retained search firm presents to you. (A retained search firm is not in a position to hire for you.)
A retained search firm works on the search on an exclusive basis. No other search firms or recruiters, internal or external, work on the search. Retained search firms forge a close relationship with the client as trusted advisors and leadership consultants. They offer deep industry, functional, and geographic expertise. They attract top-performing talent because they understand how to engage their interests. They provide access to senior executives because those leaders are “friends of the firm.”
Because retained firms specialize in senior executive search — it is all that they do — they remain the preferred choice for important senior executive searches. As a result, their fees are higher, and they focus on the quality of candidates over quantity.
Contingency Search Firms
Contingency search firms work on a contingency basis, much like contingency attorneys who only get paid if they win lawsuits. Contingency firms are only paid if they make a placement. In other words, if you don’t hire any of the candidates that the contingency firm has presented to you, they don’t get paid. Consequently, the contingency firm may not fill the position for you. Because you’re not paying them to do the work of recruiting, they don’t have to work on the search at all, and they don’t have to tell you that they’ve abandoned the search. Their willingness to work on the search depends on how easily and quickly they can fill the search — since their livelihood depends on making placements.
Successful Contingency Search is Never Free
Contingency firms will tell you the reason to choose them is that they’re “free”. You don’t pay them to do the work. Yet, the catch is that if they successfully make a placement — which is the goal — you do pay. If they don’t fill the role, you still pay a price because your open position languishes unfilled. You have no idea what, if anything, has been done to fill the position.
Moreover, once a contingency firm discovers a Most Placeable Candidate (MPC), they market that candidate to your competitors. You can’t blame them — they have to make placements to get paid, but it sets up a weird relationship. Are they really in your corner if they’re presenting the candidate you want to hire to multiple employers? When an MPC receives multiple offers, it drives up the compensation, which in turn increases the contingency placement fee. It doesn’t do a lot for trust.
Contingency Firms Rarely Specialize in Executive Search
Contingency firms are often the choice for non-executive roles — especially those that are easier to fill. Additionally, contingency firms charge lower percentage fees than retained search firms. As a result, their fees are lower. Moreover, most contingency firm agreements are not exclusive. When multiple firms work on a search, they race to make placements. So they focus on the quantity of candidates over quality.
Hybrid Retained-Contingency Firms
Hybrid Retained-Contingency Search Firms — so-called Container or Retingency Firms — split the difference between retained and contingency search firms. You pay part of the fee as a retainer and the remaining balance when the placement is made. In other words, you have a little skin in the game — and have a vested interest in their success. Usually, hybrid search firms accept exclusive engagements — meaning they are the only search firm working on the search. Hybrid agreements give Container firms a little more breathing room to find better candidates.
Yet, like Contingency Search Firms, Hybrid Container Firms, also known as Retingency Firms, still tend to focus on active candidates — people actively looking for work. Rarely do they invest in executive search research to identify top-performing candidates. They typically lack the in-depth expertise that retained search firms possess. That is why they do not operate at the senior executive level. Yet they help fill a gap in the marketplace — the need to fill Vice President roles that some retained search firms refuse to take on.
Executive Search Research Firms
Executive search research firms are the perfect choice for companies seeking the quality of retained search with an opportunity to save. Recruiting research firms offer “unbundled search”, meaning they focus on the part of the search process where internal search firms could use support. Often, recruiting research firms focus on the time-consuming front end of the executive search process. They excel at identifying ideal candidates. They conduct initial outreach to determine if a prospect is interested and qualified for the role. They produce actionable candidates ready to move forward for interviews. The internal executive recruiting team then manages the remainder of the search, from hiring to onboarding the executive.
Recruitment research firms are an ideal choice for large corporations that have created a corporate executive search function featuring in-house executive search teams. By conducting executive searches themselves, the teams can save the company millions of dollars in retained search fees.
Executive search research firms regularly collaborate with internal executive recruiting teams. Interestingly, retained search firms regularly turn to executive search research firms for help. They often lack the expertise or ability to find the ideal candidates. Interestingly, retained search firms often turn to recruitment research firms to find the candidates they need for their executive search engagements. So, when companies use recruiting research firms, they are cutting out the middleman — pricier retained search firms — and are going straight to the source of ideal candidates. Due to their research expertise, recruiting research firms hold the power to make searches more innovative and more strategic.
3. Estimate What You Will Pay for the Executive Search
It is only natural to wonder, “What do search firms charge in executive search fees?” or, more to the point, “How much will my executive search cost?” Now that you have determined what type of recruitment firm you require, you can move on to requesting estimates from your short list of firms. Listed below are the kinds of pricing to expect.
Note:
To help cash-conscious later-stage startups, some retained search firms, including The Good Search, will consider taking part of the fee in options. Or they forge an agreement with a venture capital firm to conduct multiple searches across the VC firm’s portfolio companies for a reduced fee.
Retained Search Firm Fees
33-38% of First Year Cash Compensation or Flat Fee
Retained executive search fees are usually one-third (33%) of the candidate’s first-year total cash compensation, which includes the base salary and projected bonus. Retained firms also pass on direct search-related expenses at cost, such as travel. Some firms charge an additional 10%-15% of their fee for administrative costs that cannot easily be assigned to a specific search. Instead of paying 33%, the engagement can end up costing 38% due to administrative costs.
Large Search Firm Fees Start at $100 Thousand
The fees of large retained executive search firms (Korn Ferry, Spencer Stuart, Heidrick & Struggles, Russell Reynolds) usually start at $100 thousand. That is why they often turn away searches for roles with total cash compensation of less than $300 thousand. They need to make fees in the six figures to cover their global overhead.
Boutique Search Firms Offer Advantages
Boutique search firms have gained popularity as the search process has become more challenging. Their smaller size makes them nimble and responsive, offering concierge-quality service tailored to a client’s needs. And because their overhead is lower, some boutique firms are in the position to charge less for their services.
The advantages of boutique firms make them the go-to choice for retained searches. Their smaller size means their off-limits list is smaller. Retained search contracts contain clauses that forbid retained search firms from recruiting from their clients — the larger the firm and the more they specialize in your industry, the larger their off-limits list. Those off-limits lists can cripple a search firm’s ability to recruit from your ideal target companies.
Note:
To help cash-conscious later-stage startups, some retained search firms take part of their fees in options. Or they forge an agreement with a venture capital firm to conduct multiple searches across the VC firm’s portfolio companies for a reduced fee.
Contingency Search Firm Fees
20-30% of First Year Salary
Most contingency search firms charge roughly 20-30% of the candidate’s first-year salary. Because they work on a contingent basis, they only get paid once the search is completed and the candidate is hired. By then, they’ve worked hard for the money.
Contingency search firm agreements are rarely exclusive. As a result, they have to scramble to fill openings because they’re competing with the company’s internal recruiting team, job posting applicants, and other contingency firms. To increase their chances of making a placement, contingency search firms typically work on multiple open positions simultaneously, utilizing their existing database. They have little time to proactively research and recruit ideal passive candidates. They often market the most placeable candidates (MPCs) to several employers — something retained firms never do.
Hybrid “Container” Search Firm Fees
$8 Thousand + 20-25% of First Year Salary
Hybrid retained – contingency firms typically charge an initial retainer of about $8 thousand. When their candidate is hired, they then charge 20-25% of the first-year base salary of the candidate they placed. “Container” or “Retingency” firms prefer to work on an exclusive basis. Because they’re a little more up-market than contingency firms, they often work on entry-level executive roles such as Senior Director and Vice President level searches that retained search firms do not accept as engagements.
Executive Search Research Firms
$90 – $150 per Hour
$30 – $50 per Name
~$30,000 per Month
Executive search research firms do not charge a percentage of a candidate’s compensation. They charge by the name, by the hour, or by the project. The prices may vary from $5 thousand for a smaller research engagement to tens of thousands of dollars for larger engagements. Their deliverable is often a focused list of ideal candidates. Other times, they also screen and qualify candidates. Some offer extended Recruitment Process Outsourcing (RPO) services, providing research services as needed over several months at a discount.
Note: Our executive search research division, Intellerati, offers executive search research for a flat fee. Intellerati produces spot-on lists of ideal candidates, actionable lists of qualified candidates, diverse talent pools, talent mapping, and online org charts. Its investigative expertise is unmatched in the executive search industry.
Doing the Math
Never Settle for Percentage Fees
With percentage fees, the more a candidate is paid, the more a search firm makes. That’s a problem.
Charging a percentage of a candidate’s compensation sets up a conflict of interest. Percentage fees reward any search firm that inflates the compensation of the candidates they place. The more a candidate makes, the more the search firm makes.
In other words, while percentage-based pricing is common, it is not in the client’s best interest. Moreover, the apparent ethical lapse in judgement raises serious questions about the true values of the search firm. Executive search buyers deserve a search firm they can trust.
Require Flat Fees
The Good Search is a retained search firm that charges a flat fee based on the amount of work involved. We are not alone. One of the leading global retained search firms, Egon Zehnder, also charges a fixed retained search fee.
Egon Zehnder explains it thusly:
“Unlike the traditional model of search consulting, we charge a fixed fee for our assignments. That means our only incentive is to deliver what’s best for you. Our fixed-fee policy frees us to be diligent, thorough, and completely unbiased, able to assess internal and external candidates on an equal basis, and facilitate hiring negotiations with no conflict of interest.“
Can You Afford Not to Use Retained Search?
As you determine whether a retained search is in your budget, consider the opportunity cost of not hiring a top-performing executive. How essential is that position to your company’s overall success? Opting for something cheaper than retained executive search — such as Container or Retingency search — to fill a senior executive role risks being penny-wise and pound-foolish. Failing to hire the right executive exacts a tremendous cost in wasted time, lost opportunities, and damage to your company’s reputation.
Find Your Next Executive
No search firm is right for every search every time. Yet we appreciate your interest and make it a practice to listen and to help, regardless.