In general, a client would never get to see the internal workings of a recruitment service provider. There are two broad categories within which recruitment firms operate - retained and contingent.
A retained executive search firm agrees on a fixed annual compensation for a role upfront, and charges anywhere between 25-33% of the fixed annual compensation as the retainer fee which has to be paid in three instalments, generally. If the compensation goes higher than the estimated figure upfront, the client has to pay a 'top-up' fee equivalent to retainer fee percentage on the differential amount i.e. actual fixed annual compensation less estimated fixed annual compensation. Retained searches are usually exclusive i.e. clients can work with the retained search firm only for a particular position within a specific duration.
A contingent search firm or a recruitment agency as it is more widely known charges an amount between 8.33-22% of the fixed or total annual compensation as success fee i.e. the fees becomes applicable only when a successful candidate joins. Contingent searches are usually non-exclusive i.e. clients can work with multiple contingent search firms for the same position at the same time.
A client has to assess the risks and rewards associated with retained and contingent models to determine which of the two would offer highest ROI for the money and time invested.
A client needs to pay the retained search firm whether or not there is a successful outcome. Hence, the client is essentially taking a bet on ability of the Partner (the individual spearheading the search) to understand her/his company's requirements in depth and then intelligently assess prospective candidates to find the individual who will then create the desired value by discharging his responsibilities well. Consequently, a client should hire a retained search firm for positions where 'assessment' plays a critical role. These are usually leadership roles within profit or cost centers that directly impact the balance sheet and/or P&L statements over short, mid or long term.
With contingent recruitment firms, there is no capital outflow but a client takes the risk of lack of commitment with the firms s/he has engaged with. Since contingent recruitment agencies earn only on successful closures, it becomes important for them to focus on closures wherever they come from. Consequently, difficult positions or the ones that diligent candidate research are deprioritized. Hence, a client should engage one or more contingent recruitment firms when the estimated talent pool is large, and assessment takes lower priority compared to the number of applicants.
There are more advanced commercial models that solve the problem of outflow and commitment at the same time. We, at Talent Monitor, work on retained, contingent as well as other tailor made models to ensure every position gets the attention and approach that it merits.
Retained vs Contingent executive search for org building
A container executive search is a combination of retained and contingent executive search model that has unique benefits for both clients and recruitment service providers.
In a nutshell, a container executive search firm charges an upfront fee which is usually significantly lesser than a retainer instalment and a success fee when the successful candidate joins.
This model addresses the problem of commitment as well as reduces capital outflows for a client. Since there is an upfront payment, 2-5% of the estimated fixed annual compensation of the successful candidate or a fixed amount, the recruitment service provider ensures adequate allocation of time and resources to build a healthy talent pool for the role under consideration regardless of how difficult or easy the mandate is. Essentially, a client get a similar commitment as s/he would get with a retained search firm.
Furthermore, ince there is a success fee attached which is usually higher than the upfront fee - an incentive - the service provider endeavors to achieve a successful closure. To learn more about the container search model, please feel free to reach out to us.
Container search firms