The Association of Executive Search Consultants, Inc. (AESC) represents executive search consulting firms worldwide. It establishes professional and ethical standards for its members and provides information to the media and public on the field of executive search. Often, the AESC is asked about the differences between retained executive search consulting and contingency recruiting. The following is intended to address the topic.
When companies seek to hire management and professional talent from outside their organization, they have several options:
• They can decide to manage the process themselves, using advertising and/or a contracted researcher to identify potential candidates.
• They can use contingency recruiters.
• They can use a retained executive search consultant.
Using the first option, the hiring executive or a human resources executive makes an effort to find qualified applicants, typically by advertising the position, and then screens responses, interviews candidates and selects the person to be hired. The advantage here is that the company retains full control of the process.
The disadvantages are that many qualified candidates (including some of those most qualified) may not see or respond to an ad; many unqualified candidates must be evaluated in order to discover those who are qualified; and once qualified candidates have been identified, hiring authorities face complex, time consuming and sensitive issues of negotiation and reference checking – without the benefit of a third party professional.
Therefore, many organizations prefer to use independent recruiters. But, how do they decide whether to use a contingency recruiter or a retained executive search consultant?
On the surface, it appears to be simply an issue of how the recruiter gets paid. A contingency recruiter earns a fee only when the organization hires someone. A retained search consultant, on the other hand, is paid in advance to conduct a search that usually results in a hiring – but not always. Wow! Why wouldn't any intelligent company insist on a contingency fee arrangement? Why pay for something you don't receive? The reason is: the way the fee is paid has a great deal to do with how the work is carried out and what kind of result can be expected.
When a company retains an executive search firm to fill a particular job, it is paying for the process of conducting a search. Without being paid in advance, a contingency recruiter has no assurance of being paid at all. Therefore, a contingency recruiter cannot afford to invest a great deal of time working on any particular engagement, because a successful outcome depends on factors beyond the recruiter's control. Contingency recruiters typically work with a large number of job openings and, using a database of known candidates, look for matches on paper and send those candidates' resumes – as many as possible – to clients for possible interviews.
As such, the contingency search process is geared to identifying qualified candidates – but not necessarily the most qualified candidates that could be found if significant research and in-person interviewing is applied to the hiring organization's particular need.
Contingency recruiting is appropriate when:
• The salary level of the position is less than $100,000.
• Many people are likely to be qualified for the position.
• Multiple vacancies with the same job description are being filled.
• The hiring organization wants to take more responsibility for screening, interviewing and negotiating with candidates.
Retained executive search consulting is appropriate when:
• The salary level of the position is above $100,000.
• The hiring organization wants a recruiter who will make a dedicated effort on its behalf to filling the position.
• It is critical to hire not just any qualified person, but the most qualified person available.
• The hiring organization wants an independent third party to thoroughly screen candidates, through in-person interviews, before finalists are presented.
• The hiring organization wants to evaluate internal candidates against who might be available outside.
• The hiring organization wants an independent third party to help persuade an executive to leave a desirable position for a better opportunity, and to help negotiate the terms of the move.
• The hiring organization wants to approach prospective candidates on a confidential basis.
• The hiring organization wants to establish a close working relationship with the recruiter, so that the hiring process takes into account nuances of the hiring organization's culture and issues related to the job vacancy.
How the two methods differ:
There are several key differences between retained and contingency recruiting in the way the process is carried out. A retained consultant is typically working exclusively on the search and is expected to evaluate all candidates being considered for the position. A contingency recruiter usually does not have an exclusive assignment, but instead is in a race against other sources to present a winning candidate.
As a result, a retained consultant will never present a candidate to more than one client at a time (except for part-time board of director positions). A contingency recruiter, on the other hand, often presents attractive candidates to as many clients as possible.
Contingency recruiters tend to be more specialized by industry and function. Retained search consultants also specialize but, because they are driven by original research for each engagement, are willing and able to apply that process across industries and functions – especially when circumstances indicate the possibility of recruiting from outside the client's industry.
Fees for the two kinds of service are similar – typically 30-33% of guaranteed first-year compensation for the hired candidate. Retained recruiters make an estimate of the fee and bill for a portion of the fee to initiate the engagement, with several subsequent invoices leading to a final bill that makes an adjustment based on the actual compensation package awarded to the hired candidate. As an alternative, most retained consultants will also accept a fee fixed at the outset based on the expected compensation level and billed in three or four monthly installments during the search. Contingency recruiters, on the other hand, receive one lump sum on hiring.
In addition to the fee, retained consultants ask clients to reimburse them for out-of-pocket expenses – mainly travel expenses for candidate interviews. This often adds 10% to 15% to the fee. Contingency recruiters typically don't incur these expenses.
Neither contingency nor retained executive search consultants accept fees from individuals for the purpose of helping them to find a job. However, contingency firms are motivated to "market" highly attractive candidates to several potential employers at once. Retained consultants are not motivated to sell candidates in the same way; they are being paid for the process of selecting the best candidate, so they can be more objective about whether a particular individual is the right choice.
The retained process has many more steps. Here is what a hiring organization can expect from a retained executive search consulting firm that is a member of AESC:
• The consultant will conduct detailed interviews with the client organization's management team, to develop a full understanding of the position to be filled and the qualifications of the executive to be recruited.
• A summary of this understanding – including a detailed profile of the qualifications and experience of the desired candidate – will be communicated to the hiring executive at the outset of the engagement.
• This engagement letter will also include a complete description of how the search will be conducted and will outline the firm's policies on fees, expenses, guarantees and assurances against recruiting executives away from the client organization in the future.
• The consultant will conduct original research, targeting organizations identified as likely employers of potential candidates and assessing proprietary and commercially available databases for sources of potential candidates.
• Through this research, the consultant develops a "long list" of potentially qualified candidates, then conducts telephone interviews to develop candidates for possible in-person interviews.
• In one or more in-person interviews, the consultant conducts a thorough evaluation of each candidate's suitability for, and interest in, the position.
• The consultant presents several qualified candidates to the client for interviews and, throughout the process, acts as a mediator to assure that all issues relevant to filling the position are being addressed.
• Once the client has selected one or more candidates it would like to hire, the consultant conducts final reference checks to confirm the accuracy of judgments about the candidate's suitability and to assure that all relevant information about the candidate has been gathered.
• The consultant will help the client develop the job offer and will help the candidate prepare to accept it.
• After the hiring, the consultant will stay in touch with both the client and the successful candidate to assure an orderly transition.
• Finally, the hiring organization can expect two assurances from the search firm: first, the firm will pledge that, during a given period of time (usually one year), if the hired candidate does not work out for reasons the search consultant should have foreseen, the firm will repeat the search at no extra charge (out-of-pocket expenses only); second, the search firm will pledge not to recruit from the hiring organization for a stated period of time (usually two years) following the engagement.
Retained search firms that are members of the AESC are bound by a Code of Ethics and Professional Practice Guidelines. Copies are available on request from the AESC.