Executive Recruiting Demystified

Making the right hires at the executive level may be the single most critical step you’ll take to affect your company’s success. Your company’s future rests in the hands of your senior management team. Yet when it comes to hiring new talent, even the most savvy often succumb to the temptation of trying to do it without a professional recruiter.

A good executive recruiter is both a consultant and a partner, and comes to understand your business. One of the major advantages of using a professional for your senior recruiting needs is their ability to tap into an extensive network of contacts that can deliver high-quality candidates. The best candidates often prefer to work through an executive search firm, valuing the high level of confidentiality and the benefits of mediation that a professional recruiter brings. This confidentiality also protects your company during the vulnerable period when an executive position is open.

What kind of recruiter should you use?

There are two basic types of executive recruiters: firms that work on a contingency fee basis and those that work on retainer. Contingency firms are paid if and when they fill a position, while retained firms are paid regardless of the outcome of a particular search. At first glance, the contingency arrangement may seem more attractive, but it’s important to understand the difference in the services you’ll receive when you choose one type over the other.

A contingency firm acts like a clearinghouse, working quickly and gathering a large number of resumes. It’s generally appropriate for entry-level or mid-level management positions with clearly defined requirements. Hires are usually local, and speed often takes precedence over finding the ideal candidate.

A retained firm functions more like a senior adviser to the executive client, handling higher-level searches with selective criteria. These firms are highly skilled at managing challenging searches, and will usually bring you a carefully screened short list of well-qualified candidates. The retained firm is generally the choice of technology companies for top-level general management and Board of Director recruiting, as well as for management consulting and venture capital hires.

How much will using a recruiter cost?

The standard practice in the executive search industry is to charge a percentage of the new executive’s first-year compensation. For retained firms, the usual range is 33 percent to 35 percent. For contingency firms, the usual range is 20 percent to 25 percent or higher. The range may be higher for international searches.

There are some exceptions. Some firms are willing to negotiate lower fees in exchange for a guaranteed volume of assignments. For the most senior positions with the highest salaries, an increasingly common approach is to charge a fixed fee for a given assignment. And in the world of startups, recruiters may even accept stock in lieu of some portion of the cash fee. Be sure to get an agreement up front on how expenses will be handled. Most firms bill for expenses incurred while working on an assignment, and the costs can vary widely.

If a search fails — you aren’t happy with the candidates presented, or no one is found who will accept the job in question — you are still legally obligated to pay a retained firm its full fee. In this case, a contingency firm is not paid, ergo, the “contingency” moniker.

While contingency firms won’t bill you until a search is completed, the billing policies of retained firms are more varied. The standard practice is to bill one-third when the search is initiated, one-third after a month, and the balance at the start of the third month.

Choosing the right recruiter

The key to finding the right executive recruiter is asking the right questions. You’ll want to get solid answers to the following questions when you start evaluating firms.

  1. How long has the firm been in business?

  2. Does the firm have any areas of specialization?

  3. What are some recent searches they’ve completed?

  4. Does the firm conduct international as well as national searches?

  5. Who will lead the search — a senior or junior recruiter?

  6. Does the firm have the bandwidth to adequately handle your assignment?

  7. Ask to review a draft of its standard engagement letter to gain an understanding of how the firm handles searches, and what to expect at each stage of the search.

  8. What kind of recruiting limitations, due to recent placements, will the firm have? Generally, a search firm is limited from recruiting candidates out of a company for whom they have worked during the prior two years.

After you’ve interviewed a few firms, question your own comfort level. You’ll need to feel confident that the person and firm you’re hiring are worthy of your trust.