An executive search firm is a company who employs headhunters and recruiters who are well-networked in their niche and who find qualified candidates for the search firms’ clients. Executive search firms charge different fees based on the search structure and payment terms.
“Most recruiters want this: 30% of the annual salary and a clear agreement about payment.” – Recruiters Lineup
Is 30% the executive search firm charge standard? In our opinion, yes.
What does “a clear agreement about payment” even mean?
In this article, we will go over the various executive search structures, fees, payment arrangements, and exactly why executive search firms charge different fees. We want to make sure you understand the different structures of executive search arrangements as the fee percentage typically changes with each one.
There are three executive search arrangements we will discuss in this article:
- Retained and Exclusive Executive Search
- Retained Executive Search
- Contingent Executive Search
Executive Search Structures
Retained and Exclusive Executive Search
Retained and exclusive executive search is an arrangement where the search firm is both: (a) paid a retainer to initiate the search and (b) is the only search firm working on filling the position.
Retained Executive Search
Retained executive search is where the search firm is paid a retainer to initiate the search, but the search firm does not have exclusivity. This means other search firms or the client themselves could also be working on filling the position.
Contingent Executive Search
Contingent executive search is where the search firm is taking on most of the financial risk as they are not paid at all unless they are able to fill the position for their client. There is no retainer or exclusivity in contingent executive search arrangements.
Executive Search Fees
For each of these three executive search structures, more search firms will charge different fees. For example, if a client is not willing to pay a retainer or provide the search firm with exclusivity on a given search, then this is a contingent executive search.
Contingent Executive Search Fees
Executive search firms charge a 30-40% fee if they complete a contingent executive search. The executive search firm charges a higher fee for a contingent executive search because the search firm is taking on nearly all the risk. They will most likely be competing against other search firms on the same search assignment, which typically cannibalizes the available candidate pool and makes the employer who hired multiple search firms look bad to the prospective candidates. The prospective candidates will be receiving calls, emails, text messages, etc. from several recruiters from different search firms and this will give the candidates a sense that the client/business is desperate.
Retained Executive Search Fees
Executive search firms charge a 25-35% fee if they complete a retained executive search. The client will pay an upfront fee (retainer) at the beginning of the search, another fee when a pre-determined number of qualified candidates are presented to the client, and then the remainder of the agreed upon fee once the candidate is hired by the client and the search is complete.
Retained executive search fee agreement example:
- Projected Candidate Salary: $250,000
- Fee Percentage: 30%
- Total Projected Fee: $75,000
- Upfront Retainer: $25,000 (1/3)
- Fee After 3 Qualified Candidates Are Presented: $25,000 (1/3)
- Fee Upon Hiring Candidate: $25,000 (1/3)
The fees typically charged for retained executive search are lower than a contingent search because the client has put some skin in the game by pain the executive search firm a retainer. However, in this arrangement, the search firm has not been provided exclusivity for the search. This means other executive search firms and recruiters could potentially be working on the same search simultaneously. This brings us to the final structure we will discuss today: retained and exclusive executive search
Retained and Exclusive Executive Search Fees
For an executive search firm and headhunter, a retained and exclusive executive search is the holy grail of all executive search structures. When a client agrees to a retained and exclusive executive search, this shows that the client:
- 100% trusts the capabilities of the executive search firm.
- Is willing to invest to make sure they find the best of the best talent in the marketplace.
- Wants to be given priority for their search over the search firm’s other contingent search arrangements they have with other clients.
When it comes to the fee structure for retained and exclusive executive searches, executive search firms charge a 20-30% fee. We at AKA Search Group want you to know that paying more than a 30% fee for a retained and exclusive executive search is not standard. There are many search firms who will push the narrative to prospective clients that they offer only retained and exclusive executive search at a fee of 35%, sometimes even more. We advise you to be wary of this, and to either request a 20-30% fee for the retained and exclusive executive search or find a more reasonable search firm to work with.
Just like the retained executive search arrangement, the retained and exclusive executive search will most likely follow the three-part payment structure: (1) 1/3 up front retainer, (2) 1/3 due after first group of qualified candidates, (3) remaining fee balance due at hire.
The fee for retained and exclusive executive search should be the lowest of the three different search structures as the client is paying a retainer and putting their best foot forward in providing exclusivity to the search firm. This greatly reduces the financial risk of the search firm and swings some of the risk onto the client as they are paying an upfront retainer. This is invaluable to an executive search firm, so be sure to leverage this when negotiating fees with an executive search firm under this arrangement.
Conclusion
Most executive search firms will offer these three executive search structures. Executive search firms charge different fees for each structure. Here is an abbreviated summary of the pros and cons of each structure to clients for you to understand:
Retained and Exclusive Executive Search Pros and Cons
- Pros:
- Lower fee percentage paid (20-30%)
- Search firm gives highest priority
- Search firm deploys additional resources
- Odds of finding highest quality candidates increase
- No cannibalization or saturation of client’s open role in the marketplace
- Cons:
- Client shares in the financial risk of the search by paying a retainer
- Client could pay 2/3 of the fee (retainer and first group of candidate’s fee) and still not fill the position
Retained Executive Search Pros and Cons
- Pros:
- Search firm gives strong, not highest, priority
- Search firm deploys additional resources
- Odds of finding highest quality candidates increase
- Cons:
- Increased fee percentage paid 25-35%
- Cannibalization or saturation of client’s open role in the marketplace can occur
- Client shares in the financial risk of the search by paying a retainer
- Client could pay 2/3 of the fee (retainer and first group of candidate’s fee) and still not fill the position
Contingent Executive Search Pros and Cons
- Pros:
- No financial risk on the client’s part. Fee paid only if a candidate is hired.
- Search firm deploys additional resources
- Odds of finding highest quality candidates increase
- Cons:
- Increased fee percentage paid (30-40%)
- Search firm gives lowest priority to the search
- Search firm holds back on deploying additional resourced
- Cannibalization or saturation of client’s open role in the marketplace can occur
We hope this article provides you with a clear understanding of the various executive search structures, fees, payment arrangements, and why executive search firms charge different fees for each. Our aim here is to ensure you can partner with an executive search firm and be treated in a fair and equitable way. A relationship between a client and an executive search firm should be built on trust and open communication, with all parties involved having the best interest of each other in heart.
Contact us today for information on how you and AKA Search Group can work together to find the highest quality talent in your market for your organization.
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