Contingent vs. retained executive search—which is right for you?
The next time you bring a new leader into your organization, chances are you and your board will consider specialized guidance from an executive recruiting firm. Among your criteria will be a keen eye for talent, but also a diplomatic touch, gravitas and credibility in the marketplace. After all, these professionals will be acting as your company’s representatives while spending time with many talented would-be candidates—only one of whom will join you.
The question may arise, Do we choose a contingent or retained firm?
The allure of the contingent recruiter—that is, someone who accepts an assignment but only receives a fee if they present you with the winning candidate—is peace of mind without any upfront cost. You can confidently report to the board that “the headhunter is on it,” having not spent a dime while they go to work. This is the opposite of the retained consultant, who requires a fee upon signing the contract.
As seasoned recruiters who have worked under both models, we believe that such confidence is misplaced. While the contingent headhunter is working, they’re not necessarily working for you.
This difference is more acute when seeking top candidates who identify with underrepresented communities. Because contingent recruiters value wide reach over in-depth relationships, they are at a distinct disadvantage with discerning executives—particularly those of color—who are in high demand. Our direct experience in both retained and contingent firms has shown us that retained recruiters, who spend their time building relationships in minority communities, are the ones you want making calls on your company’s behalf for that next leadership post.
Contingent Firms Are a Volume Business
The contingent headhunter prioritizes volume because that’s how the business works. It’s a successful business model. For them.
By definition, contingent firms only get paid if they find the winner; accordingly, those businesses need to increase their odds for success by taking on as many assignments as possible. Within the firm, individual recruiters are tasked with meeting as many active job seekers as possible—regardless of background, skill set or function—to fill the firm’s database with resumes that can later be vetted by someone else. Weekly intake metrics are aggressive and are tracked with little regard given to accuracy, quality or fit for long-term retention for any particular opening.
In fact, when a “job order” is received by a contingent firm, little time is spent with you—the client who has ordered that job—to discuss the particulars of the role, its history within the organization and future expectations, much less to fully understand your goals and your company culture. For each job, recruiters mine the internal database and post the job specifications online—”spray and pray”—hoping that the right candidate will pop up. Potential candidates are lightly vetted before they are presented to you, and you are the one left to determine whether the individual is qualified or wide of the mark.
This relative light touch with candidates is reflected in the standard contingent terms, which typically call for a fee of 15% to 25% of the candidate’s base salary and a guarantee for 90 days. Exclusivity is almost never granted, pitting contingent firms against each other and, more important, against your own internal talent team, which can result in confusion in the marketplace when candidates receive multiple inquiries for the same role—a less than ideal first impression, to be sure. And, if the winning candidate for your role fails to be identified early in the process, the contingent recruiter has a diminishing incentive to keep digging, as there are other job openings in front of them that are easier to fill.
Retained Firms Are a Relationship Business
Perhaps counterintuitively, the retained search firm is highly incentivized to collaborate with you and your team by creating a partnership with their client. First, retained recruiters are consultants who provide more than candidates. Their deliverables also include candid counsel about the market—e.g., your role’s relative attractiveness compared to other open positions—and assistance with the entire process, from defining the position through designing interviews and helping onboard the new leader.
Exclusivity is a necessary term of a retained engagement as it aligns the search firm with the company. Instead of a race to present a resume, there is time to get a thorough understanding of you, your culture and the position’s requirements, and to then meet, vet and introduce a group of people who fit that need. This is not to say time to close a search isn’t a priority; rather, it is finding the right balance between speed and accuracy for a long-term fit. Fees are typically one-third of a candidate’s first year’s cash compensation and the guarantee can be a year or longer, which puts pressure on the consultant to make the right call.
Retained firms limit their engagements to provide quality service, with substantial time and attention given to each client and candidate. Retained consultants stay close to their clients, assisting with succession planning and organizational structure, for instance. And instead of meeting as many active job seekers as possible, they establish relationships with individuals who are happy and highly valued in their current roles. The consultant keeps track of the highest performers throughout their careers, in many cases acting as a professional coach and confidant. When presenting a shortlist of finalists for a particular search, the consultant will have thoroughly vetted each person through several meetings, essentially conducting the first round of interviews. At this point in the process, there is no praying involved; the work has been done with these candidates to know they hit the mark.
This is of crucial importance when working with executives from historically underrepresented populations. The long-overdue attention now being paid to such individuals should be applauded, but the competition for such talent is fierce.
Credibility Is the Key to Success in Attracting Diverse Executives
If diversity, equity and inclusion are a priority for your organization, it is important to think about a truly inclusive search process and how outreach into different communities is made. How will you and your recruiting partners differentiate the organization and the role? How will you and your team stand out from the array of opportunities in front of the best executives? Who do you want telling your story?
The diverse executives you seek will want to have confidence in the narrative being told about your organization and their own potential to make an impact, to be a success. Such in-demand candidates want to know that your opportunity is the right one for them and will look to those on the front line—your recruiter—for that assurance.
When seeking to build a diverse team and differentiate your company, it is not a contingent firm with its candidate-light, volume-based approach that will best position the organization or role in the marketplace. Only a retained firm, particularly one with established ties and a track record of success with overlooked communities, has the deep relationships and commitment to representing your interests with the best executives.
Take it from us—seasoned recruiters who’ve worked under both models—the adage “you get what you pay for” is all too true, especially when it comes to an inclusive search. Retaining a consultant who can leverage their hard-won credibility with underrepresented communities is more than worth it when diversity is a priority.