How Do Executive Search Firms Get Paid?

How Do Executive Search Firms Get Paid?

Understanding how executive search firms get paid is as simple as it is misunderstood. Sadly, many organizations consistently struggle to recruit and retain executives because they don’t utilize executive search firms. This is often due to concerns about cost.

That’s why we put together this quick article that explains the executive search business model in plain language – allowing you to make an informed and confident decision when deciding whether an executive search is suitable for your organization and vacancy. 

The Advantage of Executive Search Firms

The best executive search firms are world-class talent acquisition specialists, which means partnering with them to fill vital leadership and specialist roles can provide numerous advantages to your organization.

First, partnering with an executive search firm can dramatically reduce soft costs (which experts project could account for 60% of an executive role’s cost-to-fill) due to your vacancy. Your executive team and HR department can avoid sinking expensive amounts of time and resources into tracking down a decent candidate. 

Secondly, executive search firms enjoy several significant advantages over in-house recruiters and normal recruiting firms when it comes to identifying, accessing, and onboarding executive talent. 

Executive search firms invest substantial time and money to build, maintain, and expand their global networks of top-performing executives. These networks allow executive search firms to make the perfect placements for their clients.

Finally, executive search firms also enjoy the advantage of unmatched insight into the global talent market, access to advanced candidate evaluation tools that strip subjectivity from their selection processes, and teams of search specialists with first-hand executive experience. 

How Do Executive Search Firms Get Paid?

Despite commonly-held misconceptions, executive search firms’ compensation structures align extremely closely with popular recruiting models used at the entry, intermediate, and mid-management levels. 

Like most recruiters, executive search firms base their fees on the contracted role’s first-year salary. Executive search prices typically range from between 25-35% of the first-year’s salary (compared to 15-25% for non-executive recruiters) and are paid out according to one of two popular payment models: contingency or retained. Contingency and retained executive search firms tend to charge similar rates but follow different payment structures. 

Contingency search firms don’t bill clients at all until the placement has been finalized. That’s because their contract (and therefore, payment) are contingent on being able to fill an open role – usually while competing against several other contingency search firms. 

The competitive nature of contingency executive search can lead firms to find, qualify, and present as many candidates to their clients as quickly as possible. The speed and volume that contingency search firms generate can be great for organizations interested in filling a vacancy as soon as possible. However, contingency firms can require more involvement from your team to narrow down candidate rosters. 

Contingent executive search agreements are typically non-exclusive, which means your organization can work with multiple search firms and only have to pay the “winning” firm that provides your favorite candidate. 

It’s important to note that this lack of a hard commitment goes both ways – if a contingency executive search partner spends too long spinning their wheels trying to fill your role, they may move on to quicker and more profitable projects. 

Retained search firms bill their clients monthly, quarterly, or on a milestone-specific timeline. Much like retained attorneys or accountants, retained recruiters seek long-term partnerships that allow them to dive deep into their clients’ organizations to create customized talent acquisition strategies. 

Retained search firms generally use exclusive recruiting agreements that bond their firm and client for 60, 90, or 120 days. During this contracted period, the client incrementally pays the executive search firm for their ongoing recruiting activities instead of paying the entirety of the fee once the placement is complete. 

Some organizations hesitate to partner with retained search firms due to the low commitment required by contingency firms. However, retained search firms tend to work with fewer clients, serve niche, complex, or challenging industries or roles, and rely on a positive reputation to generate recurring and new business, making them excellent partners for organizations with complicated executive search needs. 

Understanding Executive Recruiter Fees

Contingent Services:

1. Payment Upon Success: Contingent executive search services involve payment to the search firm only after a successful candidate is hired. This structure can be appealing to organizations looking to minimize upfront costs and risk. However, it’s important to note that this payment model might attract a larger pool of candidates, but the depth of candidate assessment and strategic collaboration could be limited.
2. Transaction-Oriented: Contingency searches are often more transactional in nature. Recruiters focus on presenting more potential candidates quickly to increase the chances of a successful placement. This can lead to a faster turnaround but may sacrifice the thorough evaluation required for executive-level roles.
3. Limited Commitment: As the payment is contingent on a successful hire, the search firm might have a less vested interest in the long-term success of the candidate within your organization. This can impact the level of ongoing support and partnership offered by the search firm after the hire is made.

Retained Services:

1. Upfront Investment: In a retained executive search, organizations pay an upfront fee to secure the search firm’s services. This model ensures a more dedicated, comprehensive, and strategic approach to identifying the right candidate. The retained structure is often favored for high-level executive positions due to its depth of assessment and alignment with the organization’s unique needs.
2. Focused Expertise: Retained search firms typically specialize in specific industries or roles, allowing them to bring a deep understanding of your sector’s nuances and challenges. This expertise ensures a more targeted candidate search that aligns with your industry’s demands and your organization’s strategic objectives.
3. Comprehensive Process: The retained model involves a thorough candidate assessment process that evaluates not only technical skills but also cultural fit, leadership qualities, and strategic thinking. The search firm’s commitment to understanding your organization’s culture and goals ensures a better match between the candidate and your company’s needs.

Understanding these differences between contingent and retained services can help organizations decide which payment structure aligns best with their executive search requirements and business goals.

Let Medallion Partners Tackle the Executive Search Process for Your Company 

Medallion specializes in making one-in-a-million executive placements that move the needle. Our hard-earned access to a worldwide network of high-performing, innovative, and diverse executives positions us to create placements that perfectly match our clients and candidates. 

Contact us today to learn more about how Medallion Partners is changing how organizations expand their executive teams with data-driven processes, meticulous market analysis, and an unmatched commitment to success.