Executive search firms are specialized recruitment firms that help organizations find top-level executives and professionals for their leadership positions. These firms are typically hired by organizations looking for highly specialized and experienced individuals to fill key positions, such as CEOs, CFOs, and other senior executives.
When you have a critical position at the board or senior level that needs to be filled, it is common to inquire about the pricing for executive search services. You may have questions such as “What are the usual fees for retained executive search services?” or, more specifically, “What will be the cost of my executive search project?”
Information on the fees for each executive search service type will dictate the recruiting firm you want to work with.
Knowing the Executive Search Firm Types
Four types of firms can help fill senior-level leadership roles: contingency firms, hybrid retained-contingency firms, retained search, and executive search research firms. They will dictate the pricing model, from how you pay to the fee amount. Below there are listed, in no specific order.
Contingency search firms operate on a pay-for-performance basis, similar to contingency attorneys who only receive compensation upon winning lawsuits. These firms are only paid when they successfully place a candidate, meaning that they don’t receive payment if you don’t hire any of the candidates they present to you. Consequently, the contingency firm may not put much effort into filling the position for you as they don’t receive payment for their recruiting work. They may even abandon the search without informing you. Their willingness to work on the search largely depends on how easily and quickly they can fill the search, as their income is tied to successful placements.
It is a common misconception that contingency firms are “free” since you don’t pay them to do the work. However, if they successfully make a placement, you do pay a fee. Moreover, if they don’t fill the role, you still pay a price as your open position remains unfilled. In addition, once a contingency firm identifies a highly desirable candidate, they may market that candidate to your competitors. While this is understandable as they need to make placements to earn a fee, it creates a strange relationship. You may question if they’re truly on your side if they’re presenting the candidate you want to hire to multiple employers. When an attractive candidate receives multiple job offers, it drives up the compensation, which increases the contingency placement fee. This doesn’t do much for building trust.
It’s important to note that contingency firms are frequently chosen for non-executive positions, particularly those that are simpler to fill, and these firms typically charge lower percentage fees compared to retained search firms, resulting in lower overall costs. Furthermore, most contingency firm agreements are not exclusive, allowing multiple firms to work on the same search simultaneously. In such cases, these firms prioritize quantity over quality of candidates to race to make placements.
Hybrid Retained–Contingency Firms
Hybrid Retained-Contingency Search Firms, also known as Container or Retained Firms, offer a blend of both retained and contingency search services. The client pays a portion of the fee upfront as a retainer, and the remainder is paid once the placement is made. This structure allows the client to have some investment in the search’s success and an interest in the outcome. Typically, hybrid firms work exclusively on the search, allowing them more time to find the best candidates.
However, like Contingency Search Firms, Hybrid Container and Retained Firms tend to focus on active candidates rather than investing in executive search research to identify top-performing candidates. They lack the specialized expertise of retained search firms, making them less suitable for senior executive roles. Nevertheless, they can help fill a gap in the market for filling Vice President positions, which retained search firms may refuse to take on.
Retained Search Firms
Retained search firms are considered the top choice for crucial senior executive roles that are vital to a company’s success. These firms work on a retainer basis, similar to attorneys who are paid retainers. Unlike contingency firms, retained search firms are paid regardless of whether any of the candidates they present are hired. The retained search firm works exclusively on the search, with no involvement from other search firms or recruiters, whether internal or external.
Retained search firms build a close relationship with the client, acting as trusted advisors and leadership consultants. They offer extensive industry, functional, and geographic expertise, attracting top talent by knowing how to engage their interest. They provide access to senior executives who are “friends of the firm”. Because retained firms specialize in senior executive search and focus solely on this area, they are the preferred choice for critical senior executive searches. Consequently, their fees are higher, and they prioritize quality over quantity of candidates presented.
Executive Search Research Firms
For companies seeking high-quality executive search services while still aiming to save on costs, recruiting research firms offer an excellent option. They provide “unbundled search” services that focus on supporting the internal search team by managing the time-consuming front end of the executive search process. Their expertise lies in identifying the most suitable candidates, reaching out to them, and assessing their qualifications and interest level. They then produce a list of promising candidates for the internal team to interview and hire.
Large corporations with in-house executive search teams can benefit from collaborating with recruiting research firms as it can save them millions of dollars in retained search fees. In fact, even retained search firms often turn to recruiting research firms for assistance in identifying top-performing candidates. By engaging recruiting research firms, companies can cut out the middleman – i.e., the more expensive retained search firms – and get direct access to the ideal candidates. Thanks to their research expertise, recruiting research firms can make executive search processes smarter and more strategic.
Picking the Right Search Firm For Your Business Needs
How to Select the Right Type of Search Firm
As a client, the first step is defining your needs. This involves identifying the skills, experience, and qualities you require in the ideal candidate. You should also consider your organization’s culture, values, and long-term goals. Once defined, the cost of your executive search is influenced by the type of search firm you choose.
- Retained Executive Search is typically the most expensive and is generally preferred for senior executive searches. On the other hand, Contingency Search Firms are less costly than retained search firms, but they usually don’t handle critical senior executive searches.
- Hybrid Retained-Contingency Firms fall somewhere in between and may be more suitable for lower-level executive positions like Vice President roles.
- Executive Search Research Firms offer an opportunity for cost savings while still providing quality candidates, similar to retained search. Their research expertise often leads to smarter and more strategic searches, resulting in better outcomes.
Contingency Search Firm Fees
20-30% of First Year Salary
The typical fee charged by contingency search firms is around 20-30% of the candidate’s first-year salary. As they operate on a contingency basis, they only receive payment once the search is finished and the candidate is hired. This means that they must put in significant effort to earn their fee.
Since contingency search firm contracts are usually non-exclusive, they face competition from the company’s internal recruiting team, applicants from job postings, and other contingency firms. To improve their chances of finding a suitable candidate, contingency search firms tend to work on multiple open positions simultaneously, relying on their existing database. This leaves them with limited time to proactively identify and recruit passive candidates who might be the ideal fit for the role.
Hybrid “Container” Search Firm Fees
$8 Thousand + 20-25% of First Year Salary
Hybrid retained-contingency firms usually charge an upfront retainer of around $8,000, followed by 20-25% of the placed candidate’s first-year base salary. “Container” or “Retained” firms prefer exclusive engagements and typically focus on entry-level executive searches, such as Senior Director and Vice President positions, that retained search firms may not accept.
Retained Search Firms
For executive-level positions, such as CEO, CFO, and CTO, as well as for Executive Vice Presidents, Senior Vice Presidents, General Managers, Managing Directors, and typically Vice Presidents, the recommended choice, is typically a retained executive search firm. These firms specialize in these high-level roles as they have a significant impact on a company’s success.
Retained executive search is considered the norm when the position is critical, and investing in it is necessary. However, there are a few considerations to keep in mind when deciding if a retained search firm is the right option for your company, such as the potential impact of hiring the right candidate on your company’s success.
Considerations for Retained Search Firms
One factor to consider when selecting a retained search firm is the cost, which can often exceed $100,000. Therefore, it’s essential for a company to have the financial capacity to afford this type of service. Generally, companies with revenues of $100 million or those with access to funding are better positioned to pay for a retained search. However, some retained search firms, such as The Good Search, may be willing to negotiate an agreement with later-stage startups that includes taking part of the fee in options. Additionally, these firms may partner with venture capital firms to conduct searches across their portfolio companies for a reduced fee, providing a cost-effective solution for cash-conscious startups.
The value of hiring the right person for a crucial role can be immeasurable and can propel your company to new heights, offering the question if whether your company can afford not to use retained search. Retained search firms provide access to top-tier candidates that you simply cannot afford to overlook. For this reason, many companies find ways to make the investment in retained search, even if it requires stretching their budget. As you evaluate whether a retained search is feasible for your company, it’s important to consider the opportunity cost of not using it to make a game-changing hire. Ultimately, the importance of the role and its impact on your company’s success must be considered.
Executive Search Research Firms
Typical pricing for Executive Search includes:
- $90 – $150 per Hour
- $30 – $50 per Name
- $30,000 – $40,000 per Month
Executive search research firms have a different pricing model and do not charge a percentage of the candidate’s compensation. Instead, they may charge by the hour, project, or name, with prices ranging from a few thousand dollars to tens of thousands of dollars for more extensive projects. If you’re looking to fill an executive position, executive search agencies are the right choice. These firms offer a restricted but highly talented pool of employees, lessening the risk of selecting the wrong candidate for a given role.
You Get What You Pay For
Choosing a less expensive option, like Container or Retained search, instead of retained executive search to fill a senior executive position can be a shortsighted decision. The importance of a senior executive role cannot be overstated, as it can significantly impact a company’s success. A top-performing candidate who possesses exceptional skills has the potential to bring corporate breakthroughs and provide an exponential return on investment or ROI. Failure to hire such a game-changing executive can result in your competition seizing the opportunity, outmaneuvering your company in the marketplace. This is why recruitment is often described as the War for Talent.
Choosing What’s Best For Your Business
Executive search is the best way to go if you’re needing a candidate with a particular cultural fit, exact skill set, or stellar performance history.
While it may sound simple, executive search firms apply a more systematic approach to finding the right candidates. The process of finding prospective candidates includes a market mapping exercise to create a list of candidates. Their deliverables often include a list of ideal candidate profiles for individual searches. Then, the shortlisted candidates are further reviewed and then one or two are selected that best meet the company’s criteria.
Since executive search firms specialize in filling positions that are otherwise difficult to fill, they are considered highly valuable. They quicken the length of time to fill the needed roles because of their unique approach. These firms may even provide discounts for longer engagements.
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