When engaging with an executive search firm, you may encounter different approaches to fees and wonder about the best way forward for your organization. So, in this post, we explore the various fee structures, offering insights into how each one either enhances or hampers your overarching objective: securing the ideal fit for your team.
To begin, there are two different, well-known models that most search firms employ — contingency and retainer. A retained search is when you hire an executive search firm and work with them exclusively to find the right fit for your team, and you pay a “retainer” fee. The contingency search arrangement differs from retained search in that the recruiter’s fee is “contingent” upon their success, and the contract is not exclusive. In other words, clients can engage with several different firms simultaneously and no fee is owed unless they successfully place a candidate.
However, what many are not aware of is that retained search firms come in two varieties: traditional, time-based retainer and hybrid retainer (sometimes referred to as “Container Search” because the fee structure is a hybrid between contingency and retained models).
Time-Based Retainer & Hybrid Retainer Models
Traditional, time-based retainers, used by most retained search firms, typically involve three payments: (1) one-third of the fee is payable upon the initiation of the search, (2) another one-third is due 30 days after the commencement of the search, and (3) the remaining one-third is paid 30 days following the midpoint payment, i.e., prior to the conclusion of the search.
In contrast, under the hybrid retainer approach, a small retainer is owed at the launch of the search efforts and then the remainder of the fee is due only when the ideal candidate is hired. If no hire is made, no further fee is due. This unique, client-centered approach is used by 20/20 Foresight.
Comparing the Models
So which approach is better? Let’s compare the contingent, time-based retainer, and hybrid retainer fee structures across six different key metrics:
1. Level of Position
- Contingent: Best for junior-level roles where posting jobs generates activity.
- Retained Search (both hybrid and time-based retainers): Best for confidential searches and/or senior positions that require close collaboration between client and search consultants.
2.Candidate Sourcing
- Contingent: Candidates are sourced exclusively through job postings on LinkedIn. This means you only get candidates actively looking and the quality is inconsistent at best. Additionally, if you engage several agencies, there is the high potential for candidates to receive multiple requests from multiple agencies which “cheapens” the job.
- Time-based Retainer: Firms lack the incentive to source as many qualified candidates as possible because they receive their fee in advance (i.e., why go to more effort when they have already been paid). Therefore, clients typically only receive a small slate of candidates from which to choose. Additionally, most of these firms lack the necessary infrastructure to source a large pool of highly qualified talent.
- Hybrid Retainer: Firms are motivated to produce a large pool of qualified candidates because they don’t get paid until you have made a hire. At 20/20 Foresight, we continually source candidates until you have found the ideal fit. Moreover, we have built a sophisticated infrastructure to source qualified candidates (active and passive): an expansive database of contacts, a digital platform to market positions, and an in-house research team that conducts exhaustive research to mine candidates for each and every search.
3.Candidate Vetting
- Contingent: With no guarantee of payment, these firms do not conduct any due diligence. All interested candidates are turned over to the client to filter and evaluate themselves. As a result, candidate quality varies greatly.
- Time-based Retainer: Because they receive their fee before the search is completed, firms have no incentive to thoroughly vet candidates. To the extent candidates are evaluated, such assessments are often not comprehensive because many firms do not have the internal resources and platform to support a robust evaluation process.
- Hybrid Retainer: Because firms receive the majority of their fee only when the ideal candidate is hired, they are incentivized to carefully vet every candidate to ensure they are highly qualified. At 20/20, each candidate undergoes a proprietary evaluation process (“Deep Dive“) which reviews skills, experience, and interpersonal traits. All assessments are integrated to arrive at 20/20’s CLEAR Score which allows our clients to holistically evaluate and compare candidates. Clients are provided with a full report of the results. And because we are so confident in our vetting process, 20/20 offers a 2-year guarantee on most placements.
4.Client Relationship
- Contingent: The relationship is transactional and non-exclusive. There is no client loyalty — the same candidate is often presented to many different clients at once. In addition, if a contingent search firm feels your search will be very difficult or a more lucrative one lands on their desk, yours probably goes to the bottom of their pile. Moreover, a contingent search firm has no concern for your brand. Let’s say you’ve invited two, three, or more contingent agencies to help you find a new hire. They are likely to send mixed messages into your target market with a range of quality, accuracy, and honesty.
- Time-based Retainer: Because the fee structure is based on time, it does not prioritize outcome or value delivered and, therefore, does not incentivize long-term client relationships. Client service is focused on the front end when the fee is still outstanding.
- Hybrid Retainer: This fee structure encourages a consultative partnership and long-term client relationship because firms don’t get paid their full fee unless and until the client is satisfied. To meet and exceed our client’s expectations, 20/20 Foresight provides objective, data-driven guidance based on robust evaluations of every candidate so that you can make an informed decision. We will never try to sell you on a candidate – it goes against your interests and ours. And if, within two years you are not satisfied, we will replace the candidate at no additional cost.
5. Industry Expertise
- Contingent: All recruiters are generalists.
- Time-based Retainer: Although some senior recruiters have industry expertise, most firms delegate the details of your search to junior, inexperienced recruiters.
- Hybrid Retainer: 20/20 ‘s Search Consultants are former real estate and financial services executives who know these industries inside and out. They are dedicated to your search from start to finish.
6. Guarantee
- Contingent: Placements are guaranteed for a maximum of 90 days.
- Time-based Retainer: Placements are guaranteed for a maximum of 6 months.
- Hybrid Retainer: 20/20 Foresight guarantees most placements for 2 years.
If you are interested in learning more about 20/20’s Foresight executive search services, we welcome you to connect with us at foresight@2020-4.com.