Understanding the Types of Payment Structures of Executive Search Services

When choosing a firm to fill a leadership position, consider two types of executive search firms: retained and contingency firms.

Retained Executive Search Firms:

Retained executive search work on contracts and charge clients a fee upfront for their exclusive services. This fee guarantees a strong effort to find the best candidate, with payments usually spread out during the search. Known for their thoroughness and comprehensive candidate assessments, retained firms prioritize quality and long-term fit for executive roles.

• Dedicated Commitment: The upfront fee ensures a dedicated commitment to finding the ideal candidate, as the firm’s revenue is not dependent solely on successful placements.
• Thoroughness: Known for conducting comprehensive candidate assessments, leading to higher-quality hires and long-term fit for executive roles.
• Exclusivity: Clients receive exclusive access to the firm’s services, with a focus on personalized attention and tailored solutions.

Contingency Executive Search Firms:

Contingency search firms focus on filling mid to lower-level positions with lower pay than executive roles. This reflects their payment structure, as they receive compensation based on the new employee’s first-year earnings. Typically, these jobs have lower first-year earnings. Contingency firms mainly concentrate on mid to lower-level positions. They do this to handle multiple searches simultaneously. By doing so, they increase their chances of successful placements and ultimately make more money. Additionally, these firms may specialize in specific industries or niche markets, leveraging their expertise to source candidates efficiently for roles at various organizational levels.

• No Upfront Cost: Contingency firms operate on a “no win, no fee” basis, requiring no upfront payment from clients.
• Compensation Upon Success: They receive compensation only upon the successful placement of a candidate.
• Handling Multiple Assignments: These companies often work on multiple tasks simultaneously. They focus on filling mid-level management roles and positions with numerous job openings.
• Flexibility and Prioritization: While offering flexibility, contingency firms may prioritize assignments with higher chances of success.

Fee Structures of Executive Search Providers

Typically, retained search firms charge fees amounting to approximately 30 to 35% of the anticipated first-year salary of the successfully placed candidate. Retained executive search firm fees are commonly divided into three installments:

Retained Executive Search Firms

1. The initial payment, constituting one-third (1/3) of the total fee, is made to initiate the search process.
2. The second installment is typically paid around 60 days into the search.
3. The final payment is settled upon the successful hiring of the chosen candidate.

Contingency Executive Search Firms

These firms typically charge approximately 20-30% of the candidate’s first-year salary. However, since they only receive payment upon successful completion of the search and hiring of the candidate, companies must maintain regular communication with the search firm and demonstrate a strong commitment to seeing the process through to the end.

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Both retained and contingency executive search companies cater to businesses seeking top talent. Retained firms prioritize exclusivity and thoroughness for executive roles. In contrast, contingency firms offer flexibility and speed for mid to lower-level positions. Understanding these differences helps organizations make informed decisions when partnering with executive search firms.

To fully understand how the process of engaging retained executive search specialists works read this blog:

The Process of Engaging Retained Executive Search Specialists

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