One of the biggest misunderstandings in our industry is around the two different types of executive search firms. Although both types of firms help to find talent for an organization, the way they are compensated and how they approach the search are vastly different.
The first – a retained executive search firm – is retained to conduct a thorough search that will yield a small slate of highly qualified candidates. Salveson Stetson Group is this type of firm.
The second type of search firm is called a contingent or contingency firm. Contingent firms are hired to find a candidate. The emphasis is often on speed and quantity of resumes.
It may sound like semantics, but the way these two executive search firm models operate is very different.
How the Two Firms Are Compensated
In a search led by a retained executive search firm, the client enters into an exclusive agreement with the executive search firm. It typically pays a deposit and commits to paying the full fee – usually a percentage of the candidate’s first year salary – once the search has concluded.
A contingency firm, on the other hand, gets paid only when it finds a candidate to fill the position. It is not uncommon for a company to hire multiple contingency firms who compete against one another to fill the same position.
How the Processes Differ
Compensation isn’t the only difference between how retained and contingency executive search firms operate.
A retained executive search firm places great emphasis on the search. It invests time to ensure it knows the client’s culture, understands exactly what type of candidates the client wants to consider, and evaluates whether or not a candidate will be a strong cultural fit. It will screen dozens and dozens of candidates and present only a few to the client.
One of the biggest benefits offered by a retained executive search firm is its ability to surface candidates who are not necessarily looking to make a move.
Contingency firms, alternatively, are driven to find a candidate as quickly as possible, since they don’t get paid until they do. The quicker they can find a candidate, the more profitable the search is for them. They rely heavily on databases and presenting as many candidates as possible, in the hopes of striking gold.
Which Type of Executive Search Firm Makes the Most Sense?
For staff and lower-level management jobs, a contingency search firm can be a good solution. But for senior-level, high-profile or very important posts, a retained executive search firm will typically make more sense. It will approach the search from a strategic position, investing time to fully know the client organization, understand its talent needs, and critically assess every candidate before they are presented to the client. A retained executive search firm will also be able to identify and persuade top performers who aren’t in the job market to move to an exciting, new opportunity.