Hiring and onboarding a new senior executive to the leadership team for any company should be a very methodical, strategic, and involved process. Many companies partner with executive search firms to carefully manage this process to ensure you find the best-fit talent possible. Every search firm specializes in a particular industry, geography, or function. Still, one of the most overlooked characteristics that companies omit when exploring their options is understanding the fundamental differences between contingency and retained executive search firm models. When most companies cross this bridge of choosing a retained versus contingency search firm, they often view it as a simple difference in fee structure:
Retained executive search firms receive a 30-33% fee of an executive’s base salary, split up into equal payments and paid on a monthly retainer over the course of the search (2-4 months) or based upon milestones achieved within the process.
Contingency executive search firms accept one lump sum payment (usually 25% of an executive's base salary) upon the placement of a candidate.
Companies must consider how the type of model a search firm operates under can influence and impact the kind of talent they will have access to and the level of service they can expect to receive. The type of talent each model brings to the table is essential - especially when making a senior executive level hire. Within the world of talent acquisition and recruiting, there are two distinct types of talent, active and passive.
Different Access To Talent And Candidates
Since contingency search firms operate on a one-time, pay-per-placement model, they are motivated by speed to receive their fee as quickly as possible. The nature of their urgency creates an environment where they need to source and procure as many candidates as possible. To do this, they will often post open positions and roles to job boards and websites to generate as much interest and activity as possible. This strategy can work well for lower-level roles in recruiting. At the senior executive level, this method attracts what is known as “active talent.” Active talent refers to senior executives that are actively seeking new opportunities. Active talent applies for open positions because they are currently unemployed or actively seeking a new opportunity for any number of reasons. Often this will not yield the most qualified, interested, or available candidates or talent, but rather an overwhelming quantity of mediocre talent.
Compared to the contingency model, retained executive search firms take a more consultative approach to every senior executive placement and are motivated to find the best possible talent. Since the fee model is based upon performance and paid overtime on a retainer, the pressure is not to present as many candidates as quickly as possible but to find the best candidates. Retained search firms often do not publish senior executive opportunities to job boards. Instead, they will build a strategic list of research criteria, essential skills, core competencies, and experience to create the “ideal or benchmark candidate profile.” This list of research criteria is then used to search, find and match passive talent within the market. Passive talent refers to candidates and leaders who are gainfully employed and not actively looking to make a career change.
This type of talent is highly skilled and highly sought after, as they are top performers and invest in their work. Retained search firms network and build long-term relationships with passive talent and candidates and tap into this side of the talent market when working on senior executive level searches. The goal for retained executive search firms is to find the best-fit talent for the role, company, and culture that will be successful.
Partnering With Contingency And Retained Search Firms.
A contingency search firm will often lean towards non-exclusivity when working with companies. This is because if a company does not select a candidate, payment is never received. As a result, contingency firms will work with multiple companies simultaneously to assure that at least one placement will yield payment to cover costs. While this can appear beneficial to companies because they can work with many contingent search firms, this is a common misconception. Contingency search firms are incentivized by speed instead of a commitment to finding the right candidate with the best experience, qualifications, skills, fit, etc. In some cases, contingency search firms will prioritize one search or client company over another for several reasons, including:
Focusing on a current or returning client’s search
Testing client relationships to gauge overall investment and potential for future business
Directing internal resources to searches where the candidate pool is larger
This type of model does not allow for a contingency search firm to hyper-focus on one company’s search for a senior executive leader. As a result, the level of service, candidate experience, and project management will usually suffer.
Retained search firms, on the other hand, prefer exclusivity arrangements when working with clients and companies. Since their model is more focused on partnership and relationships, there is an investment by both the search firm and the company in the successful placement of a candidate. By being exclusive, boutique retained executive search firms can offer meticulous attention to detail, invest in candidate relationships, and leverage these relationships across a search. In this case, the pressure is placed on a retained search firm over the course of the engagement to provide high-touch service at all times to both the company and the candidate. Since a relationship with a retained executive search firm is often over several months, retained search firms frequently serve as a trusted advisor to help guide the strategy, progress, and talent assessment throughout the executive search process. This approach builds a more consultative relationship between the search firm and the company instead of the more transactional approach when working with a contingency search firm.
When To Use A Contingency or a Retained Search Firm.
There are some circumstances in which each model will outperform the other, depending upon the type and level of hire. There is a time and a place when contingency search firms are a better option to use when outsourcing your recruitment function. Since contingency search focuses on the speed and quantity of candidates they can deliver, this model is more suitable for lower-level hires (entry-level to mid-manager roles), where a placement needs to be made quickly with a candidate that is a decent match for the job. Speed and quantity can sometimes outweigh fit and match for these lower-level placements, where culture and skills can be learned. Making a mis-hire at a lower level is a lot less risky and detrimental than hiring the wrong candidate for a senior executive leadership role. Often, contingency firms will provide a replacement guarantee to find a new candidate if the first placement is not successful. On the other hand, retained executive search firms are better suited for placing top talent at the Director level and above. For these more senior-level placements, there is a higher risk involved in finding the right candidate. If the wrong candidate is hired, there can be substantial financial and cultural consequences across the organization. A senior executive at the leadership level needs to have the right skills, experience, education, and background and must lead and embody the company culture, mission, values, and direction. These benefits are why retained search firms focus more on fit and quality over speed and quantity. Through mutual investment and a trusted and consultative approach, a retained search firm can more deeply understand and assess a company’s culture and find the best passive talent that will align with it. For retained executive search firms, much of their business relies upon referrals and reputation. When it comes to placing a senior executive for a search, they cannot afford to fail.
So What Does This Mean for Your Business?
There are many differences between contingency and retained executive search models. In summary, retained executive search firms partner with companies looking to attract and hire passive talent from the Director level up to the C-suite. The more senior level the search, the more critical it is to find the best-fit talent, and this is the core mission for retained search firms. Sometimes, a retained executive search firm will complete a C-Level or Director-level search and then be asked to build out the team below this leader. Since the retained search firm has invested in a relationship with the candidate, understands their leadership style, and has learned the company culture, it is only natural to leverage these insights when building out the larger team. Click the button below to contact us to learn more about the retained executive search services that Chapel Hill Solutions provides and how we support companies in building stronger and better leadership teams.