Executive Search Firm Pricing Models and Why They No Longer Work
The proliferation of recruiting alternatives has created a dilemma for many executive search firms – no surprise there. However, what may surprise you is that it has also created a problem for companies with critical hiring needs. I’ll get to that in a moment, but first, let us consider just a few of the recruitment channels that are currently used in today's talent acqusition efforts:
- Internet Job Postings (there are now thousands of sites)
- Talent acquisition departments – companies have hired their own internal recruiters
- Social Networking tools (LinkedIn, Facebook, Twitter)
- Corporate websites – many companies now have their own career portals
- Websites such as Indeed, SimplyHired, and Juju – aggregators of job postings
- Employee Referral Programs
- Retained or contingency executive search firms
The typical executive search firm pricing model and working arrangement hasn’t changed much in over 20 years. The larger retained search firms, for a single search assignment, still want to charge between 25% and 33.3% of the candidate’s total compensation, along with an administration fee on top of that. The contingency recruiting firms are charging between 15% and 25% of the total compensation.
Restrictive and Expensive
The problem with the retained firm pricing model is that the client company is responsible for the full fee, regardless of the results. In addition, most retained search contracts have clauses that require you to pay the fee, even if you find the candidate on your own. With most companies having invested heavily in their own recruitment resources to find candidates, handing it all over to an outside search firm without including your own internal resources may not be feasible. This is a major reason why companies consider the retained pricing model to be too expensive, overly restrictive, or both.
Not a Dependable Solution
The problem with the contingency firm pricing model is that the contingency recruiters only receive payment if they make the placement. As such, contingency firms are very discriminating on what positions they spend their time on – as they should be. They focus on the path of least resistance and in many cases your job requisition takes a back seat to the jobs that are “easier to fill.” This is logical and should be expected.
In addition, since no financial resources are being dedicated to the assignment initially, contingency recruiting firms cannot afford to have “researchers” day after day for many weeks, dedicated to identifying the “best” candidates – the high-performers who are not “looking for a job.” Most contingency recruiters work in the same way as an internal recruiting staff – they rely heavily on advertising, job postings, and LinkedIn. As a result, they often turn up the same candidates as the company’s own HR department. The Contingency Search Pricing Model is a hit or miss business model that eventually succumbs to attenuation of effort, cutting corners, and valuing delivery speed over “goodness of fit.” This is a problem and the lack of transparency can give your company a false sense of security. You may feel like you are “covered” since you have given the assignment to three contingency firms. However, in reality, it is difficult to know for certain if these companies are working hard for you. After all – you haven’t purchased their commitment with any kind of a retainer.
Many companies now avoid hiring retained executive search firms, even if the need is at the senior level, because of the fees and restrictions mentioned above. As a result, when seeking the services of a “headhunter” they are more likely to offer the search assignment to several contingency firms and then get frustrated when they do not see the results they hoped for. This is why so many internal recruiting departments fail to find and attract the talent they need to grow their organizations. They are cutting off a very important resource they need – executive search consultants who will continue without attenuation of effort until the search is completed. These are typically retainer-firm services and resources with the capability to proactively find and attract high-performers who are too busy to look for a job. These candidates are not looking at job postings, looking at jobs on LinkedIn, or trolling Indeed.com. They are too busy being successful at what they do. They have to be identified, tracked down, approached, and engaged.
The Best Solution
The solution is simple but it is rather difficult for many retained search firms to accept. The solution is for the search firm to work beside its client (as opposed to working in competition with its client). Search professionals should become an extension of a company’s recruiting capabilities and resources, working together with one cohesive strategy to achieve the goal of hiring great people. This means letting a company’s talent acquisition or HR department utilize all of its resources simultaneously and in combination with a search firm’s efforts. In this way, a company can benefit from the many resources a quality search firm can provide including:
- Identifying and engaging candidates who the company would not likely find and attract on their own
- Recruit directly from competitors with a 3rd party in between
- Pre-employment assessment testing to “ensure goodness of fit”
- Retention strategies using assessment testing tools
- Research and competitive market Intelligence
- Social media recruitment campaigns
For companies to benefit from these services, they must feel comfortable embracing an executive search firm as a true resource partner and, in many cases, this will not happen until search firms change their pricing models. They must offer a completely flexible pricing menu, much like that of a true consulting firm. Clients need pricing options and services that are flexible and customized to the company’s hiring objectives. This will allow full utilization of the recruiting tools its own HR department has put into place while having access to other resources and capabilities the company does not possess. Pricing options may include hourly rates, weekly engagements, caps, “container” fees and fixed project fees. For more information on this topic including examples of pricing structures and the many ways the resources of a high quality executive search firm can be used to help your recruitment efforts, feel free to contact us.