What Are the Fees of Executive Search Firms?
First, Determine the Search Firm Type
Whenever you have an important board or senior-level opening to fill, it’s reasonable to ask about executive search pricing. You may wonder generally, “What do search firms charge in executive search fees?” or more to the point, “How much will my executive search cost?” To find out what an executive search firm will charge for its services, you first must determine what type of executive recruiting firm you want to use.
Executive Search Firm Types
4 kinds of firms that can help you fill executive-level roles. They primarily are based on how you pay for the search and the amount of the fee — the pricing model.
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. They 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 interest. 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. In fact, 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.
Contingency Firms Are Not “Free”. You Still Pay.
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 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 really 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 Focus on Non-Executive Roles
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. So you pay part of the fee as a retainer and pay the rest of the fee when the placement is made. So you, the client, have a little skin in the game — and have a vested 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 lack the deep expertise that retained search firms have. 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 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. They produce actionable candidates ready to move forward for interviews. The internal executive recruiting team manages the remainder of the search through to hiring and 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 middle man — 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 smarter and more strategic.
Next, Select the Best Search Firm Type for Your Search
What is the Level and Importance of the Role?
If the position 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 because those positions are important. They have a direct bearing on the company’s success. When a role is important enough, investing in retained executive search is standard practice. If hiring the right candidate for the position could have a material impact on your company’s ability to succeed, a retained search firm may be the best option — with a few caveats.
Is Your Company Large Enough or Well-Funded Enough?
One of the caveats for selecting a retained search firm is your company must be large enough to afford the fee. Retained search fees often exceed $100 thousand. Consequently, a company usually needs to be large enough to afford retained search. What’s large enough? Usually, they’re 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.
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.
Can You Afford Not to Use Retained Search?
Another question to consider is whether you can afford not to use retained search. To risk a double negative, retained search firms deliver candidates you cannot afford not to hire. In other words, you hire them because they will catapult your company lightyears beyond where you are today. So, many companies find ways to make that investment in retained search. So, as you consider whether a retained search is in your budget, one consideration is the opportunity cost of not using a retained search firm to make a game-changing hire. Again, one must consider the importance of the importance of the role. How essential is that position to your company’s overall success?
Can You Risk Paying Less if It Might Cost You More?
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. A senior executive can make or break a company. A top-performing candidate — the best of the best — holds the potential to produce corporate breakthroughs with exponential return on investment or ROI. If your company doesn’t hire that game-changing executive, then your competition just might, outflanking your company in the marketplace. That is why recruiting is frequently referred to as the War for Talent.
How to Select the Right Type of Search Firm
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 when compared to retained search firms, yet they rarely tackle important senior executive searches.
- Hybrid Retained-Contingency Firms split the difference and therefore may 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 quality candidates similar to that of retained search. In fact, their research expertise often makes search smarter and more strategic, which leads to better results.
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. So instead of paying 33%, the engagement can end up costing 38% with administrative costs.
Large 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 dollars. 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 in order to pay for their global overhead.
Boutique Retained Firms More Popular
Boutique search firms have grown in popularity as search has gotten harder. They often offer concierge client service and produce better results. Their smaller sizes enable them to innovate and tailor services to a client’s needs. Due to their reduced overhead, their fees often are lower than the larger firms. Yet many boutique firms have had to raise their rates to offset the higher costs.
Still, increasingly 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.
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 usually work on many open positions at once, using their existing database. They have little time to proactively research and recruit ideal passive candidates.
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 – $40,000 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 dollars for a smaller research engagement to tens of thousands of dollars for larger engagements. Their deliverable is often a focused list of ideal candidate profiles research for individual executive searches, yet they often can do much more. Some offer extended Recruitment Process Outsourcing (RPO) services, providing research services as needed over, for example, 6 months or a year. Often, in exchange for a longer engagement, the research firm offers 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.
A Word About Percentage Fees
In addition to determining what a search firm costs, it is important to consider how a headhunting firm comes up with the fee for an executive search engagement. With percentage fees, the more a candidate is paid, the more a search firm makes. Some contend that is a conflict of interest.
Percentage-based pricing enables search firms to benefit from negotiating higher salaries for the candidates they place than what those executives would have accepted. Clearly, paying more than necessary for candidates is not in the best interest of the client. In other words, while it is common, it isn’t necessary right. We believe it is disqualifying that apparent ethical lapse is a relection of the values of the company.
The Good Search is a retained search firm that charges a simple flat fee based on the amount of work involved. And we are not alone. One of the leading global retained search firms, Egon Zehnder, also charges a fixed retained search fee.
Our clients want a search firm they can trust. Percentage fees are not based on the amount of work involved. They also set up an inherent 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.
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.“
The Good Search Retained Search Fees
Fees start at $85,000
Our minimum retainer is $85,000. Our average retained search fees range between $85,000 and $150,000. Most of the executive-level positions we work on have total annual cash compensation in excess of $300,000. The Good Search works by fixed retainers for a reason: you should not have to wonder about your search firm’s loyalty. By decoupling our fees from candidate compensation, we eliminate the conflict of interest of percentage-based fees.
Flat-fee retainers not only take the moral high road, but they are also easier on the budget. For every retained search engagement, we draw up a proposal detailing our fee, based on the search’s requirements and difficulty. Clients know exactly what an executive search will cost from the beginning. There are no surprises.
Our retained search firm fees are based on the amount of actual work involved, not on candidate compensation. For details, check our earlier blog post. If you do not have the budget for retained, we recommend executive search research as that looks and acts a lot like retained, but gives you the opportunity to save.
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Schedule a conversation with CEO Krista Bradford.
We understand we’re not the right firm for every executive search every time but we make it a practice to listen and to try to help, regardless.