Category: Retained Search Best Practices

In the first and second articles of this three part series, we discussed the differences  and utilization of HR, internal recruiters and executive search firms.  In particular Part 1 reviewed unearthing passive candidates and vetting, while part 2 looked at onboarding and negotiating offers.  In conclusion, we discuss how retained executive search actually provides affordability of retained search fees.

 

Myth #5: Retained Executive Search is too Expensive.

 

Retained executive recruiters report that many of the companies that can most benefit from their services employ internal recruiters. This may lead to the belief that utilizing retained search firms when internal recruiters or HR people are employed is not cost effective.  A simple cost analysis will show otherwise. Consider the combined cost of salaries and benefits of HR personnel and internal “recruiters”, as well as the time that HR people spend doing non-productive interviews with unqualified candidates. These direct and indirect costs are substantially higher than paying out a one-time fee for an executive recruiter’s services.

Executive recruiters eliminate the time and expense required by a firm to find, hire and train a new internal “recruiter”. And any truly successful in-house recruiter will soon leave his salaried position to become a successful external executive search consultant.  Additionally, your chances of securing a long-term contributor are much better if an experienced executive search consultant is involved. Studies have shown that a bad hire costs companies three times more than an employee’s annual salary.

many times, HR or internal recruiters will give the same search to several contingency search firms, in the hope that multiplying the quantity of resumes and applicants will result in something that sticks to the wall.  What they fail to realize is that since the companies have no skin in the game, contingency recruiters research and send the same candidate resumes to everyone of your competitors at the same time.  After all they only receive a fee if a candidate they present is hired,  At the same time, the job posting is duplicated across the Internet on job boards and emails making it seem like their may be an issue with the quality of the opportunity and /or the company.

Retained search firms never use job boards.  They unearth the best candidates, vet and assess and deliver a shortlist of 2 to 4 finalists to consider.  With retained executive search firms, their work isn’t done once a candidate has been placed successfully. A guarantee covering the candidate is often one year; at NextGen we offer a 24 to 36 months replacement guarantee – far exceeding the probationary period.  Seasoned recruiters make a point of periodically checking in with candidates that they have placed and will share any concerns with the hiring manager. This is invaluable information and directly contributes to a long-term successful employee, longer retention, and a highly productive staff.

Success Based Recruitment Affordability of Retained Executive Search Fees

 

Finally, many retained executive search firms have gone to a performance based (or rather success based) fee structure.  While the initial deposit can range from ¼ to 1/3 depending on the role, usually the 2^nd invoice occurs once the shortlisted candidates are delivered and scheduled for in-person interviews.

The final invoice occurs upon hiring one of those candidates.  For the senior executive level succession bench, the final invoice can occur up to one year later dependent upon the new executive meeting their MBOs.

It’s a win-win for the company and a good retained search firm will not look at it as a gamble on money, rather confidence in the placement they have made.

Internal recruiting can be a good solution to filling l=lower toi mid-level non-critical positions. They can screen the candidates that apply via the company portal and can provide hiring managers with candidates for lower end roles.  However, for critical and key roles, it is an excellent and necessary business decision to utilize the services of a highly skilled retained executive search firm, especially one that has expertise in your industry and knows your market.

Final Analysis on the Affordability of Retained Executive Search Fees

 

The cost of a bad hire is often 2 to 3 times the salary paid, and it doesn’t stop there.  It’s not just the loss of time and the need to hire a replacement but other aspects of failure that occur

1. Loss of momentum in a product or service launch into the marketplace which occurs in bad hires within R&D, product management, marketing, sales, and sales engineering
2. Failure to meet customer needs and reduce customer acquisition costs when the wrong software, hardware, or R&D engineers are hired
3. Failure to properly implement a strategy when a functional leader role is a bad hire.
4. Failure to meet maximum goals or M&A or IPO when the wrong CFO or SVP is hired
5. Failure to meet sales targets and expand market share when the wrong CMO or VP Sales is hired
6. Failure to meet stockholder and investors ROI when a bad CPO< CDO, or CEO is hired

Whether it is a key sales, engineering, operations, functional leadership, or senior executive role, a quality retained executive search firm actually SAVES you money in the long run and brings forth shortlist of candidates that can meet and most often exceed the objectives of the role. Therefore the affordability of retained search fees is evident they pay off in the long run.

 

Why are more and more forward-thinking employers ditching recruiting firms that produce, to put it bluntly crap. Most firms that have spent the time to really investigate the search marketplace have learned that Contingency, RPOs, and traditional retained search firms need to be ditched in favor of the 21st century success based recruitment?

In a 3.5% unemployment rate, most Hiring Managers know the undisciplined, inexperienced, and average “C players” are predominant on job boards.  In addition, with job aggregators, job openings get overexposure to the point the company suffers in public relations and branding.  same goes for RPOS and contingency search firms – the more they re-post the same job posting, the worst candidates are revealed.

Ditching Recruiting  Firms that Fail to Produce

You have certain objectives you want a new hire to meet, for most C-level executives there is not a cookie cutter template to be applied to their position.  Your target market are passive candidates, those that would never read job postings that have been picked over by every Tom, Dick and Harry, they simply are not actively looking,   What interests passive candidates?  A new challenge, a different product or service portfolio, location, company size, and more.   A typical job posting showcasing responsibilities and requirements is a no enthusiasm road map.  It is in reality a robotic drone of words strung together that entices only the unemployed or average active job seeker.

Even the traditional retained search model, which does produce much better candidates, is going by the wayside.  More and more companies are ditching recruiting firms that are traditional retained search models.

While employers understand the deposit to initiate a search, they expect results.   Most have a 90 day to 6 month replacement guarantee.  But they collect all the fees within 90 days regardless of outcomes.

‘The new paradigm, which NextGen Global Executive Search has used for a decade, is a search should be success based in regards to the recruitment fees.  Also known as a performance based search, after the deposit (which is a very reasonable percentage of the overall cost) the 2nd invoice is due upon acceptance of the shortlist and in-person interviews are scheduled. The final invoice is due upon the hire being completed.

Ditching Recruiting Firms with Compensation Based Fees

In addition, success based search fees should be a flat fee and not based on compensation.  The reason is simple, in that compensation based fees can cause an increase in the overall recruitment fees during offer negotiations which is an inherent conflict of interest.  As stated earlier the 3rd and final invoice occurs on the hire and is backed by a  24 to 36 months replacement guarantee.

The end result is both the employer and recruiter have skin in the game and the employer is confident that the majority of the fee is based on the recruiting firm meeting the objectives and a solid new hire.  To read further on why companies are ditching recruiting firms and comparisons between contingency, RPO, traditional retained search, and success based retained search, download the PDF.