Executive Search Vs Contingency Recruitment

The lines between Executive retained search assignments and contingency search have blurred in the UK, this article highlights the essential differences between the two business models and analyses the weaknesses and strengths of each.

Retained search

The client company agrees to work exclusively with a search firm.

The search firm will typically advertise through print and online media – Unlike contingency recruitment the clients identity and branding will be displayed.  Print and media advertising in trade publications or broadsheets are billed back to the client.

In addition to a media campaign the search firm will carry out extensive research, analysing the marketplace, gathering feedback and putting together a target list of potential candidates from industry reports, news sources, Linked In, networking et al.

The list is then whittled down, the potential candidates negatively screened – informal referencing, client company input play a big part here. Once the shortlist is compiled and agreed with the client the search firm will make discrete approaches to the candidates.

This phone call is the traditional headhunting call, the part of the process familiar to executives across the world. First contact is often made at the candidates place of work, a polite but direct approach will establish if that individual is open to having a further in depth conversation outside of office hours.

This next conversation represents another cull and candidates are disqualified according to the clients requirements – not senior enough, not technical enough, too expensive etc. Equally many candidates will disqualify themselves if not sufficiently interested. Happy, successful executives while interested enough to take the call will rarely be looking to jump ship.  This conversation represents a balancing act and different head hunters have different approaches but the overall aim is to draw as much information from the candidate and establish a match or disqualify where appropriate.

This is very much 1st date territory and no head hunter will want to give full disclosure at this stage – There are many reasons for this but chiefly you're looking to control the process not end up in a yes/no scenario based on an individuals perception of your clients brand.  In any industry the top firms and executive talent swims in a very small pool and water cooler gossip and brand reputation of a client organisation or individual need to be carefully managed.

Pre conceived ideas about your clients brand can make for a difficult sell so be sure to make sure that there is a genuinely good match and that your clients proposed role has sufficient weight to attract and hold a candidates attention.  

e.g A small up and coming cash rich company may be able to offer excellent prospects, be growing faster than all their competitors but if their brand currently holds all the cache value of a McJob the executives will walk away from that conversation the second you give them the client name

Of course if you're lucky enough to be conducting a search for the top tier, big four, fortune 500 type company the brand will sell itself but bias exists here but in reverse and there will often be a preference for executive talent coming from higher or at least top tier peer ranked organisations. Companies paying for retained search in general do not ‘hire down'

If there is merit for both parties to meet and discuss things further then a face to face meeting will normally take place outside of work hours – hotel lobbies are a favourite. At this stage the search consultant will disclose the client company and a far more detailed conversation will take place. 

Many modern day search firms and even contingency recruiters boast of being able to providing psychometric testing – In reality a basic tool that more often than not boxes people into four personality types through forced choice questions.  If you can convince your shortlisted panel of candidates to sit such exams then they're a powerful value add for the end client but genuine top performers will need to be very keen on the role and client company before they jump through such qualification hoops.

Payment of fee: Traditionally paid in thirds. First one-third payment is due at signing of search agreement; next on presentation of shortlist and final payment due thirty days after that.

Fee: usually equal to 30-35% of the hiree's first annual compensation. That includes bonuses, perks (such as cars, club memberships, etc.) and anything else that is considered part of the hiree's first year of compensation.

Rebate, which is the search firms guarantee to the client company generally begins at one year and extends sometimes two years and beyond - depending on hiree level and prior agreements.   Simply put the Search company will pay back a percentage of their fee if the candidate leaves or doesn't work out during this timescale.

Contingency search

Contingency search is the industry standard, it's cheaper and quicker although offers non of the guarantees that an executive search does.  In some cases the contingency recruiter may be just as able as the ‘headhunter' and the real difference is in the business model.

Often candidates are not interviewed in person (almost 100% true for interim/contract type assignments, particularly within IT) and sent to the client blind. The client will then decide to interview or not depending on the individuals CV.

Contingency recruiters do not charge a  retainer fee and the client is only invoiced once the candidate starts work.

Non-exclusive which means the client organisation is free to advertise directly speak to other recruiters and in fact often actively do so to encourage competition and ensure value for money.
Many have formal or informal preferred supplier agreements in place with several agencies who work on a  contingency basis trading limited exclusivity (2/3 agencies, direct access to roles) for lower profit margins.

The bulk of candidates submitted will come from online advertisements on job boards such as Monster, Jobsite, total Jobs, and the searching of their online CV database.  Many client companies now employ in house recruiters who scour these job boards.

Job boards themselves now market aggressively to the end client reasoning that it would be a win win for any hiring company to cut out the recruiter middleman and pointing out that for the large part recruiters are simply forwarding CV's readily available to anyone with access to their database.
A counter argument of course is that Job boards can cost upwards of £2000 for a single months access and can not guarantee results – Clients pay agencies on results, job boards sell the promise of results

Client rebate is generally up to around two months but vary from company to company.

Costs are calculated as a fee equal to the hiree's first year of annual salary. Rarely are other compensatory benefits included such as bonuses, perks, etc.

Public and Not-for-Profit: 15-20%. 
Private Sector 20-25%. 

In conclusion there is support for both business models, executive search may represent a more professional approach but it comes down to the individual or the firm and many ‘executive search' firms now bill clients almost exclusively on a contingency basis and for far less than the industry
average 30 – 35%.

Equally many contingent recruiters have excellent networks and contacts and could carry out the same services as a headhunter for far less cost, in a quicker timescale but would not back their candidates with a two year rebate. It's this provision of insurance that really marks the difference between contingency and executive search.