Retained v. Contingency SearchBy Jennifer Silvester
77% of leaders say their biggest impediment to success is hiring the right leaders. The cost of the wrong leadership hire can be expensive, most estimates and studies agree that the cost is up to 3X the failed hire’s salary. While it is easier to quantify the physical cost of a poor hiring decision, the emotional damage the wrong leader can have on an organization or team can lead to much greater negative impact on customers, suppliers, and employees.
Our team guarantees we will hire the right leader, or we will do it again for free. We can make this promise because more than 75% of our candidates are still working for our clients at three years post placement. We believe whole-heartedly in our ability to achieve these results lies in our retained search model philosophy.
For nearly three decades, Silvester & Company has excelled as a relationship driven retained executive search firm. This experience and sustained success have yielded us the honor and privilege of being referred countless times to new potential clients. In fact, nearly 100% of our clientele began with a referral from another client.
When talking with a new potential client, whether it be a hiring executive or an HR partner, we are often asked in the first conversation whether we support a contingency search model. Sometimes a client has never experienced retained search. Others have corporate policies that preclude them from using a retained partner unless in very specific circumstances. Often, we find a misperception of why a company might utilize a retained partner versus the seemingly lower risk of a contingency partner.
While we believe there is a time to deploy each model, a clear understanding of the differences is critical to making the right decision for a given position (search). So, what are the key differences and how should an HR leader or senior executive think about the positive and negative impacts of choosing one model over the other?
Let us first put a basic definition around each business model:
- The Retained Search Model: A client is working exclusively with a single search firm whose interest in successfully filling the role is shared with the client. A retained partner is committed to filling the role, no matter the level of difficulty or time it takes. They act as an extension of your company and a trusted advisor, driving every step of the process down to the finest details. A client will pay a guaranteed fee, often paid in three parts over the course of a search. Retained search models will typically guarantee the success of a candidate placement or they will do the search again at no cost to the client.
- The Contingency Search Model: In this model, a search firm is paid only when they produce a candidate their clients place. In this case, contingent recruiters are incentivized to focus on speed and volume versus quality. They are also going to focus on the roles they are most likely to land a placement. Contingent recruiters have a tough job as they are competing against a client’s internal HR team, other contingency firms, and even direct applicants.
Now that you understand the fundamental differences in the model, let us explore the five key reasons you might chose a retained search firm, instead of a contingency firm for a key leadership position.
- The relationship with a retained search firm is one of shared partnership with a long-term focus, versus a contingency search firm will be more transactional in nature.
- A retained search firm is likely to meet with several members of your leadership team and even board during a search. They are invested in deeply understanding not only a position, but the business strategy, the team dynamics and organizational culture.
Silvester & Company prides itself on becoming an extended member of our client’s team. To succeed, we must know and be able to tell our client’s story in the marketplace. Further, we want to continue working with our clients long after an initial placement and we invest accordingly. Some of our clients will hire us for multiple searches in a year and then next perhaps only one position. Our relationship and commitment is not predicated on the volume of work we do together. Finally, a retained search firm will guarantee the success of a placement or they will redo the search at no cost. Our guarantee is for the first year in the position.
- A contingency search firm must produce an enormous amount of volume to achieve the revenue goals necessary to sustain itself. Thus, speed is prioritized over everything else. Contingency firms often have excellent systems and automation in place to drive their activities, but their need for speed comes at the expense of deeply investing in the relationship with their clients and understanding what drives the organization and team they are serving. For example, it is highly unusual for a contingency firm to ever meet directly with a hiring executive. Instead, all work is facilitated through an internal HR team member.
2. A retained search firm will focus on quality candidates whereas a contingency firm will focus on quantity of candidates.
- A retained search firm is going to spend time with your human resources department, executive management and/or other key stakeholders to closely define the profile, experience, and characteristics of the ideal candidate. Working as a trusted advisor and expert, the retained search firm will devise a research, marketing and recruiting strategy to address the specific needs of their client. This might include careful vetting of candidates to identify leaders who can address key opportunities or failures. Perhaps you need a sales centric leader to capitalize on a growth opportunity when another needs a leader who has an operational excellence background that can help turnaround an underperforming business unit.
- A contingency firm is incentivized to move fast and present as many candidates as possible. This often comes at the expense of quality vetting, resulting in a lot of unqualified candidates that your HR team now must sort through and screen. A contingency search can make sense when a client several of the same positions open at once and/or is just interested in sourcing as many candidates as possible for their teams to sort through and assess.
3. A retained search will require fewer internal resources, will move faster and is more likely to succeed once offers are made.
- When working with a retained search partner, they will work as an extension of your HR team in the marketplace. This means your HR team will act as a strategic partner but will not be doing much (if any) of the tactical work. While a retained search may take a little longer to get to the stage of clients interviewing potential candidates, this time is often made up in the later part of the process. This is because a retained firm is incentivized to focus on presenting only those candidates who are highly qualified and fit the needs of the organization at that moment. Retained recruiters will conduct a deep vetting and assessment process. When they present a short-list of candidates to you, they will provide deep analysis on each candidate’s experience, leadership strengths/development areas, past achievements and motivations. Because they will have done all this work upfront, the process is likely to go much faster once you have selected the candidates you want to interview. The search firm continues to manage all the details and is focused on ensuring a positive candidate experience at every step.
- A contingency firm is going to present candidates quickly, but the process slows down a lot when your team now must sort through the masses to find a quality candidate worthwhile of a hiring executives time and attention. It is unlikely the contingency firm will ever meet directly with your hiring executive and will apply a standard approach and process to marketing the role, likely utilizing the basic information you have provided in a role description as their guide. The quality of vetting varies widely across contingency firms, but even in the best cases be prepared for your team to do more work to fill a role.
It is important to remember a contingency firm’s revenue model, they will focus on maximizing their work on the roles they are most likely to fill and the candidates they are most likely to place.
4. A retained search firm will deliver more qualified and passive candidates, conducting a thorough market scan, whereas a contingency search will likely be made up of principally active candidates.
- A retained search partner wants to carefully identify and contact all potential candidates who meet the needs of a given position. They often have deep networks established, but they will conduct fresh market mapping and research to ensure all qualified candidates are being targeted and considered. Retained search firms consider active and passive candidates but will heavily target passive candidates. These are candidates who are happily employed with another company and not actively pursuing a new role.
- Because the incentive is to move as quickly as possible to generate as many candidates as possible, a contingency firm is going to scan the marketplace for active and easier to place candidates. Because passive candidates often require more careful engagement strategies and time to educate on the company and opportunity, many who might be genuinely interested in the role will be missed.
5. Great retained search firms are focused on marketing their client’s brand and story with potential employees, and on creating a positive candidate experience.
- A major success factor in identifying and placing the right leader requires excellent storytelling. A retained search firm will take great care in telling your company’s story and the compelling vision of the role(s) you have entrusted to their care. They will work to create interest in your organization, long after a search is completed. This is particularly important when your employment brand is not well-known in the marketplace. At Silvester & Company, we see our reputations as being intrinsically linked. Candidates will carry with them the first impression we make on your behalf. Retained firms make creating a positive, value-added candidate experience a priority. They will keep a candidate informed of the status of a role and provide feedback when they are not selected for a position. Achieving this often means having a Partner lead recruiting for the role and rarely will be leading more than five searches at a time. Our team measures candidate experience through NPS scoring. Every targeted candidate we connect with is asked to rate how likely they are to suggest our firm to a colleague. We are proud of our 89% NPS score.
- A contingency firm would ideally like to create a positive candidate experience, mostly driven by their interest in being able to present a candidate to another client in the immediate future. Their interests are less focused on creating a positive impression of their clients as they must represent many clients (some competing) all at once, and more so on the transactional nature of just getting the right resume in the door first. It can also be difficult for a contingency recruiter to keep up with the volume of candidates they may be interacting with on a day-to-day basis. A contingency recruiter is likely working on 20+ searches at any given time – which they must to be profitable. These are the experiences that often give the recruiting a poor reputation and the unfortunate perception of recruiters being cold, flaky or just disappearing after an interview comes from.
One last point, I know I promised only five, but this one is a final note of importance to end on – cost. We have described above many intangible reasons to consider hiring a retained search firm, but you might be asking “That all sounds great, but I still have a budget to deal with – how much does a retained search cost?”. Here is what you need to know:
Retained searches are often billed at a percentage of a placed candidate’s first year compensation, broken most often into milestone or timed payments. The range can be anywhere from 28-33%, but the details of “first year compensation” are important. Many firms will charge on total expected compensation, meaning if a position has short and long-term incentives, they are charging on these as well and that can make a significant impact on the total cost of the fee.
Silvester & Company believes in a pay for performance methodology in both what we charge and when we charge it. We have never asked a client to pay fees on anticipated bonuses, this model has never felt right or made sense to us even though this is where the market has moved over the years. We appreciate our clients are investing significant trust and dollars into our ability to find the right candidate to deliver results for their teams. Just like you would not prepay a candidate’s bonus based on what you anticipate they can do for your team, we do not ask you to pay us for anticipated results.
Most contingency searches today range from 18-30% of a first-year total compensation, in this case meaning most often the first-year base salary. Client’s only pay this fee once a candidate they presented to you has been placed. Oftentimes, this fee does not include a placement guarantee as described earlier.
If you are considering whether a retained search or contingency search is the right fit for you, consider these factors prior to deciding what is best for a particular search. There are many times that a contingency search firm may be the right choice. Our suggestion would be to consider if it is a high-impact leadership role and failure could mean significant tangible and intangible cost to the business. If it is, do not hesitate to select a retained partner to massively improve your odds of long-term success.