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Contingency Recruiters vs Retained Executive search?

It's sometimes difficult for the clients to understand the difference between the recruitment, executive search, and headhunting, as a result looks the same - they hire a candidate that was introduced by the service provider. But, as always, the devil is in the details.

"Executive search (informally called headhunting) is a specialized recruitment service which organizations pay to seek out and recruit highly qualified candidates for senior-level and executive jobs (e.g., President, Vice-president, CEO). Headhunters may also seek out and recruit other highly specialized and/or skilled positions in organizations for which there is strong competition in the job market for the top talent." This is the official definition on Wikipedia, while in the industry there are nuances on these three.

While headhunting is easy to explain - it is literally "hunting for a head" of a specific professional, who can be identified by the client itself or by a headhunter, based on an in-depth conversation with the client. It's a typical case for the top positions in highly competitive industries or niche markets, where you can count the candidate on the one hand. The primary role of a headhunter then is to become a mediator in this process and gather all available information on the candidate before even approaching them, knowing how to convince them to make a move to join client's company. There is no room for a mistake.

The contractual relationship between the client and the executive search firm falls into two broad categories: contingent and retained.

  • Contingent recruiters are paid only upon the successful completion of the "search assignment".

  • Retained recruiters are paid for the process, typically earning a recruiting fee in three stages based on the anticipated compensation of the executive.

Contingent recruiters are taking a large volume of assignments and usually publish the roles online and search through their database of the candidates for the right fit. As they are typically paid success based, after you hire a candidate, the main KPI is “how many man-hours we spend per role.” They don’t have time to do quality research or be “gentle” with the candidates, and there is a practice not to spend more than 20 mins to interview the candidate if he is not the right fit for the role, as you don’t know if you will ever need this candidate. There is no commitment from their side to close the position. They work hard for a week or two, and if the client is “picky” and doesn’t interview or likes the candidates, move on to the next assignment. General practice, especially in Asia, is to hire a few recruitment companies to work on the same assignment, to keep them competitive, or to give the exclusive for the role for a week. As a result, they do simple filtering based on the CV’s to send it to the client for proper screening, aiming to submit as many resumes ahead of other companies, not to waste their time, but not the time of the client.

One of the clients shared that had a feeling that recruiters were using him for due diligence to understand how good technical candidates were for their use, as they did not even fit the role with his company.

The fee structure varies between 12-18% of annual gross salary.

Retained (Executive) Recruiters, moved away from a transactional approach and often called leadership advisory firms, adding value as long-term partners with a broader perspective to help clients do what they can’t do themselves, whether through lack of expertise or resource. Even clients with relatively sophisticated in-house recruitment functions appreciate external expertise on a range of issues such as onboarding, benchmarking, coaching, attraction & retention and talent pool development. Such firms always work retained as they invest a lot of quality time into every assignment they take on even at a discovery stage, which usually involves a visit to the clients' office and a few meetings, including hiring managers to understand:

  • Client organisation, its culture, its long-term strategies, and short-term objectives, priorities, and expectations

  • Discuss key competitors and understand customer strategies as well as organisation structure

  • Understand what are the expectations of the candidate and the role of the position in the organisation

  • Develop the candidate profile considering responsibilities and cultural sensitivities

  • Develop and agree on a search strategy

  • Discuss client and candidate communication approach

If there is an understanding of clients' business and agreement on the realistic expectations and adequate compensation from the client’s side, a contract is signed, and the first invoice equivalent to a monthly expected salary is issued.

The research stage takes about a month, and depending on the role specifics may include from 30 up to 100 candidates for the global searches (long list). In-depth research includes targeted competitor market mapping, digital research, and sourcing calls. It takes time to establish a quality contact with a high profile busy executives without rushing them into meeting a client and immature decisions. The client may expect verbal and/or written reports on the progress of the research and feedback from the marketplace and will get a comprehensive understanding of the market and the set of skills of the available candidates. It's a general practice to treat your consultant as a partner and share the profiles of the internal candidates for the role and any external candidates you've considered previously to ensure an open, comprehensive assessment process against preliminary requirements.

After the research stage is over, the consultant will conduct in-depth personal interviews for high-level assessment, followed by a more comprehensive assessment of the shorter list of high potential candidates. The current trend is to select on a future promise, rather than past performance, which takes a blend of science and art, together with psychology. Executive search firms have leverage when accessing a client's direct competitors and are using an intuitive approach to digging deep into less obvious sectors often with parallel functional disciplines, based on their expertise of completing many searches before, to come back with unexpected discoveries that can make a radical difference to a client's company. The final output to the client is a confidential report containing an extensive professional background of a candidate and the comments of the search consultant on the individual's strengths and weaknesses for the position, verification of credentials, etc. If the client uses psychometric assessments, such results to be provided as well.

We usually provide three confidential profiles of the best fitting candidates (short list) to our clients. If the discovery stage was thorough, and the client had a clear picture of what they need, as a result of the interviews, one of them is hired.

After the interviews, a second invoice equivalent to an expected monthly salary is issued, as a significant part of the time investment on the consultant' side is done. We are often asked, "what if you won't find the right fit for us?". First, it never happened before if the client was sincere with us and "walks the talk". However, even if none of the shortlisted candidates satisfies the client, we will go back to the long list containing full market research to show what else exists on the market. Usually, either professional criteria to be adjusted or compensation.

After the final candidate is identified, we agree with the client on the approach to the in-depth and comprehensive background and reference check. If the results are satisfying, the consultant facilitates the negotiation process to make sure that the client has the best opportunity to successfully recruit the favored candidate, working together to prepare a job offer and pre-close the candidate before sending a formal letter and avoid last-minute surprises. When the official job offer is signed, the consultant helps in employment contract negotiation. As we work with many clients, it helps if a consultant explains what a standard industry practice instead of a direct discussion with the employer, which may cause a lot of tension breaking the initial agreement. We also oversee the resignation process - preparing the candidate for the resignation to avoid the minute change of heart and sharing the resignation letter with the future employer.

The third, final payment, is a difference between a full fee (between 25-33% of annual gross salary) and previously invoiced amounts, is issued on a starting date of a candidate. A good consultant will stay in touch with both the client and the candidate to make sure the communication goes smooth, and the integration process during the on-boarding is on track.

Additional value is in providing feedback to the employer about the impression professionals have about the company and how attractive the employer brand is. Even one search can make a significant impact in improving it, especially when the company is going through a transformation, and there is a lot of anxiety and rumors on the market around it.

You may also see attached document by AESC explaining the difference.