How Do Retained Recruiters Get Paid?

Updated October 12, 2023

Gaining a solid understanding of how retained executive search recruiters get paid empowers you to make an informed decision for your organization while demystifying the executive search process.

There are key differences between contingency-based and retained executive recruiters. It’s important to know how retained recruiters get paid, and understand estimated expenses you can expect when partnering with a retained executive recruiter. 

What Is a Retained Executive Search Firm?

Retained executive search firms operate more like business consultants than typical recruiters. 

Retained executive search specialists integrate into their clients’ organizations, analyzing and observing crucial variables like organizational structure, workflow, company values and culture, and effective leadership styles to help inform and direct the executive search process. 

This strategic discovery process is one of the secrets to retained search firms’ success – the insights and data gathered during this stage empower retained search specialists to create a more refined and effective search, selection, and evaluation criteria, leading to smaller but more qualified pools of talented candidates. 

Instead of charging per-project upfront fees, retained search firms integrate into your organization for a period of 30, 60, or 90 days and receive regular payments based on performance milestones or an agreed-upon timeline.

What Are Retained Recruiters?

Retained recruiters are recruiters who charge clients an upfront fee to conduct a candidate search. This fee ensures that retained recruiters are operating on an exclusive basis. In other words, the retained recruiter is the only one working on filling the position. A retained recruiters goal is to find the perfect fit for each client, vs trying to fill as many roles for multiple clients in as short amount of time as possible.

How Does A Retained Recruiter Differ From A Contingency Firm?

What is a retained executive search firm and how are retained firms different from contingency firms? Retained executive search firms differ from contingency-based firms in a few key ways: client exclusivity, organizational goals, and search and selection strategies. 

Exclusivity

Retained executive search firms partner with a small number of clients and exclusively devote their time, energy, and resources toward generating world-class placements for their clients’ vacancies. This includes going after “passive candidates” who are currently employed. Clients of retained recruiting firms are not competing for candidates and always have “first dibs” on exciting candidates their search partners discover. 

Goals

Contingency-based search firms only get paid when they’ve successfully completed a placement. This often leads contingency recruiters to prioritize making placements above all else. 

This prioritization of speed can work in organizations’ favor if they’re in desperate need of an immediate hire. However, it can also lead to trouble for organizations seeking candidates with unique, niche, or highly-valuable skill sets, experience, and performance backgrounds. 

If you’re competing for candidates against multiple organizations in your industry or niche, you could miss out on your favorite candidate by simply making an offer a day too late. 

Retained executive search firms prioritize generating stellar placements within their clientele to secure referrals and recurring partnerships. This “slow and steady” business model lends itself well to organizations that want to ensure their executive search process (and the subsequent hire produced) aligns with their short and long-term business goals, corporate mission, and cultural vision. 

Strategies and Processes

Contingency-based executive search firms often use “wide net” strategies to generate large amounts of activity surrounding their clients’ vacancies. 

Their reliance on quickly and efficiently identifying, qualifying, and presenting candidates to their clients often requires more hands-on input from their partners and exposes their organizations to an array of professionals with varying qualifications and experience levels.

Retained executive search firms use their custom executive search strategies to create highly refined short lists of candidates that check all boxes for their client’s organizations. 

While retained search specialists often produce lower amounts of candidate activity than their contingent counterparts, their commitment to providing bespoke executive search experiences allows them to generate pools of talent that represent exceptional performance, leadership, and cultural fits. 

Retained Search Agreement

A retained search agreement represents a commitment to precision in pursuing executive talent. It’s a strategic partnership between your organization and a trusted executive search firm, where the objective is not merely to fill a vacancy but to secure a transformative leader. With this agreement, you agree that your search firm will immerse itself in your company’s DNA, culture, and vision.

In a typical retained search agreement, you can expect to find several key components and terms that outline the nature of the partnership between your organization and the executive search firm. While the specifics may vary between agreements, here are the common elements you can anticipate:

1. Scope of Work: This section details the specific services the executive search firm will provide. It outlines the executive positions to be filled, the industries or sectors to be focused on, and any special requirements or qualifications.
2. Fees and Payment Schedule: The agreement specifies the fees associated with the search, including any upfront retainer fee, milestone payments, and the final success fee, which is typically a percentage of the candidate’s first-year compensation package.
3. Timeline and Process: A timeline or schedule outlines key milestones and deadlines for the search process, including candidate presentation dates, interviews, and the expected time frame for completing the search. It will also detail the search methodology and process to be followed, including research, candidate sourcing, interviewing, reference checks, and presentation of shortlisted candidates.
4. Confidentiality: Both parties typically agree to maintain strict confidentiality regarding any sensitive information shared during the search process, including candidate identities.
5. Exclusivity: Retained search agreements often stipulate that the client will work exclusively with the search firm for the duration of the search, prohibiting the client from engaging other search firms for the same position.
6. Guarantee Period: Many agreements include a guarantee period during which the search firm commits to replacing a candidate at no additional fee if the hired executive leaves within a specified timeframe.
7. Termination: The agreement may outline the conditions under which either party can terminate the agreement, including notice periods and any associated fees or obligations.
8. Payment Terms: Specifics about when and how payments should be made, including invoicing procedures and any applicable taxes or expenses.
9. Legal Provisions: This section covers legal aspects of the agreement, including jurisdiction, dispute resolution mechanisms, and any applicable laws or regulations.
10. Signature and Date: The agreement concludes with spaces for both parties to sign and date, indicating their acceptance of the terms and conditions.

It’s essential to review and understand each section of the agreement thoroughly before signing. If there are any uncertainties or if you require modifications to better align with your organization’s needs, you should discuss them with the executive search firm before finalizing the agreement.

How Do Retained Executive Recruiters Get Paid?

Like almost all professional recruiters, retained executive search recruiters are paid a set fee by their clients, which is calculated using the first-year salary or total compensation package of the role in question. 

Unlike contingency-based executive recruiters, who only receive payment after making a placement, retained executive recruiters receive periodic payments from their clients throughout the executive search process. The exact timeline and details of the payment structure vary between search firms, but the agreement to regular, scheduled payments is the foundation of all retained executive search agreements. 

How Much Do Retained Executive Search Firms Get Paid?

Despite providing premium, refined, and comprehensive search services, retained executive search firm fees are only marginally higher than generalist recruiting or staffing costs (+5-10%) and align with the rates provided by their contingency-based counterparts. 

Most retained executive search firms charge between 25-35% of the role’s first-year salary or compensation package. Assuming an average executive or specialist wage of roughly $115,000, organizations should expect to pay their retained executive search partner approximately $30-40,000.