Making the Decision – Retained Executive Search vs. Contingency Recruiting

When companies seek to hire management and professional talent from outside their organization, they have three options. They can decide to manage the process themselves, using advertising, the Internet, and/or a contracted researcher to identify potential candidates; they can engage contingency recruiters; or they can use an executive retained search consultant.

First Choice:  Internal or External Resource

Doing your own hiring means you or a human-resources executive makes an effort to find qualified applicants, typically by advertising the position in the print media or on the Internet. Then you have to screen responses, interview candidates and select the person to be hired.

The advantage here is that the company retains full control of the process.

There are several disadvantages:

  • many qualified candidates (including some of those most qualified) may not see or respond to an ad or post their resumes on the Internet;
  • you will only find those actively looking and not possible candidates currently working who might be interested;
  • in order to discover those who are qualified you are going to have to review a great many who are not;
  • once qualified candidates have been identified, you face complex, time-consuming and sensitive issues of negotiation and reference-checking—without the benefit of a third-party professional.

As a result, many organizations prefer to use independent recruiters.  But how do they decide whether to use a contingency recruiter or a retained executive search consultant?

Next: Contingency or Retained

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.

But that difference, when you think about it, dictates two completely different methods of searching for the person you need — and usually ends in two quite different result scenarios

The retained search firm is being paid to conduct the search.  They therefore undertake a much more exhaustive process.  The contingency search firm is paid only when someone gets hired.  Their search process is skewed to producing results rapidly since the more time spent the less profitable the mandate.

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.

The retained search recruiter on the other hand maintains exhaustive databases of candidates, cultivates contact in sectors in which they work frequently so they know who might be restless, and pre-selects the candidates carefully using advanced assessments for suitability and job fit.  You only see the finalists.

Retained search is generally viewed by most experts as delivering the best result.  But in order to do so, it also is usually the more expensive — (at least, in terms of initial outlay.  A strong case can be made for retained search delivering the best return on the investment over time).

That said, there are times when one process makes more sense than the other.  Let’s take a look.

The contingency search process is geared to identifying qualified candidates—but not necessarily the most qualified candidates.   Contingency recruiting is appropriate in the following situations:

  • When the salary level of the position is less than $100,000;
  • When many people are likely to be qualified for the position;
  • When multiple vacancies with the same job description are being filled;
  • When the hiring organization wants to take more responsibility for screening, interviewing and negotiating with candidates.

Retained executive search consulting will in most cases identify the most qualified candidate thanks to the lengthy process of searching and interviewing.

There is also a critical difference here.  The contingency process will identify candidates with the appropriate skill sets and experience.  The retained search process will also probe for the best fit.  Most failure in hiring comes from incompatibility on cultural and personal grounds, not from workplace inadequacy.  The retained search firm applies advanced psychometric assessment to profile not just the candidate but the firm.

Retained search recruiting therefore is appropriate:

  • When the salary level of the position is above $100,000 and when it is critical to hire not just any qualified person, but the most qualified person available.
  • When you need a recruiter who will make a dedicated effort to filling the position, and who will take into account nuances of your organization’s culture and other critical issues.
  • When you need an independent third party to thoroughly screen candidates, through in-person interviews, before finalists are presented.
  • When you want an objective evaluation of internal candidates against an external shortlist.
  • When the situation requires a go-between to help persuade an executive to leave a desirable position for a better opportunity, and to help negotiate the terms of the move.
  • When a high degree of confidentiality is required in the recruitment process.

Differences in Approach

We have looked at general differences in approach between contingency and retained.  We need to look at this in more detail in order to make an informed decision on which way to go.

A retained consultant is typically working exclusively on the search and is expected to evaluate all candidates being considered for the position.  As a result, a retained consultant will never present a candidate to more than one client at a time.

A contingency recruiter usually does not have an exclusive assignment, but instead is in a race against other sources to present a winning candidate, and often present 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 able to apply that process across industries and functions.  This is important when you may want to recruit from outside your industry.

Differences in Fees

Fees for the two kinds of service are similar—typically 30-35% 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 subsequent invoices leading to a final bill based on the actual compensation package awarded to the hired candidate.

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 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 can be more objective about whether a particular individual is the right choice.

**This article first appeared in the Cornerstone Kansas City website and includes material originated by The Association of Executive Search Consultants.