For years, consultants in executive search have been explaining the difference between contingency and retained executive search firms. It has always been hard to do without sounding self-serving. I have attached a definition of Executive Search from Wickipedia (June 17, 2011) which I believe makes the differentiation quite clear.
Which process a client chooses is the client’s decision. I have a bias. After years within a client company and years as a leader in executive search, it is clear that the retained approach is best for the recruitment of key executives. The retained process is more intensive, extensive, and results in candidates with the best fit. Retained search also best represtents the client’s brand.
From Wikipedia, the free encyclopedia (June 17, 2011)
Executive search is the consultative process of recruiting individuals to fill senior executive positions in organizations. Executive search may be performed by an organization’s board of directors, or by an outside executive search organization.
Executive search profession
Executive search is an extremely lucrative industry and successful search consultants can earn large sums. For this reason there is fierce competition to work in this sector. Generally the office is broken down into three functions: Business Development, Recruiting and Research. Generally the Business Development person receives the largest commission while the Researcher receives the smallest.
The executive search profession ranges in models from “Retained” search to “Contingency” search. Retained search firms are paid a retainer equal to one-third of the fee up front to launch the search process, a third of the fee thirty days from launch and the final third sixty days from launch. If the fee is fully paid before a candidate is hired, the retained firm continues its work until the search is concluded. Contingency search firms, on the other hand, receive their entire fee at the conclusion of the search process. Over the years, many contingency firms have begun receiving retainers while retained firms have expanded their models to include flat fees, capped fees, etc.
Search consultancies are often entrenched in particular market sectors. Their market sector networks are used along with various methods to seek candidates for a particular job. Normally the individuals are not actively seeking a new job. It is the job of the search consultant to approach these individuals with a view to taking them out of their current company and placing them in another, often a competitor.
The service is paid for by the client company or organization, not by the hired job candidate. Potential job candidates are identified, qualified and presented to the client by the executive search firm based upon fit with a written or verbal Job Specification developed in conjunction with the client. Assessing degree of potential fit of the candidate with the job specification is a key activity for the search firm, since the most common reason a search consultant is engaged by a client company is to save time and effort involved with identifying, qualifying and reviewing potential candidates for specific leadership positions.
It is common for a potential candidate to be identified by the search firm via a telephone call. Often the phone call is the result of a recommendation from someone inside the existing network of the search firm. Quality oriented search firms work hard at cultivating and continually updating their network of contacts so that when a search assignment is awarded they will be ready to start recruiting potential candidates. Another way to identify potential candidates involves search firm “research”, which is contacting targeted people in specific companies who appear to fit the job profile in some logical manner. Some of the best candidate referrals come from people who could be candidates for the job themselves but for any number of reasons are not interested at that particular time.
Retained executive search firms
Retained executive search firms are firms paid on a retainer-structure that identify, assess, and recruit Corporate Officers, Board Members, C-level executives, Diversity Candidates, and other senior talent. There are large, global firms who engage in this activity, as well as regional “boutique” firms. Some smaller firms act together as a network, thus gaining global reach and being able to compete with the large integrated ones. Some firms specialize in specific industries (for example pharmaceutical, retail, IT) or functions (i.e. sales executives), while others are generalists.
Job seekers who qualify for senior-executive level searches often mistake executive recruiters for career transition, or “outplacement” specialists. Executive recruiters work for their client companies. They do not actively place out-of-work individuals. This would not only be a conflict of interest, it would also be financially unwise. A job seeker does not pay a recruiter when he lands a job. The client company pays the recruiting firm when it fills a position. This nuance is lost on many. It may be worthwhile to contact executive search firms if you qualify, but do not expect them to take time out of their schedule to talk with you or see you. They are driven by their specific assignments for their clients: they find people for roles, not roles for people. Executive search consultants can be “career makers” for some individuals, but for most, this will not be the way they will find their next role.
When choosing a firm, it is a good idea to consider carefully what you want from the relationship. While contingency firms offer a service with no money up front, they will often only work on those searches that can be executed quickly and do not have the time to focus on high-quality candidates. Another option is to hire one firm and give them an “exclusive contingency” arrangement so that the money is still paid at the end of the search, but there is only one firm working on the search. This gives the firm the benefit of time to truly focus on quality and the hiring manager is not flooded with resumes. A third option is to pay the firm an engagement fee. Generally firms with engagement fees are exclusive as well and then have more resources available to them to purchase additional research. This also moves the search to a “retained” level which brings a level of professionalism sought by many upper level candidates. At the retained level, a client could pay a “performance retainer” which means a payment to start the search, a payment when candidates are submitted and final payment when the candidate starts. These milestones are chosen due to the fact that the firm “performed”. The more traditional retainer agreements are time based and are set at specific intervals regardless of retainers.
Types of executive search firms
There are broadly two different types of Retained Executive Search firms in operation.
Global: These tend to cover numerous different sectors including financial services, life sciences, automotive, consumer, energy, pharmaceutical, telecommunications, technology, and media companies, as well as other industries. Such executive search companies will have many offices all over the world and the consultants will typically be split by which sector they are expert in. These firms are often public listed and may have over 100 offices.
Boutique: These tend to be more sector specific. That is to say that they will cover only one sector and within this sector, they may only look at certain aspects. For instance, there are a number of boutique firms that operate within financial services and these companies tend to look at senior positions (MD, Director and Vice President) within Investment Banking (M&A, Corporate Finance), Capital Markets (ECM & DCM), Sales, Trading, Research, Interest Rates, Credit, Equities, Derivatives, hedge funds and long-only asset management. As such, these firms would have one or more offices in the major financial centers across the globe; London, New York, Chicago, Dubai, Shanghai, Beijing, Mumbai, Hong Kong, Tokyo and Singapore. While the global firms may have a presence within these areas, they tend to cover board level positions within retail banking, asset & wealth management and insurance. However the larger global firms do periodically work within the capital markets arena
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