How Much Do Executive Search Firms Charge For A Successful Search?
How Much Do Executive Search Firms Typically Charge When There Is A Successful Search?
Too many organizations miss out on executive search firms’ transformative impact due to a lack of familiarity, understanding, or comfort with the “nitty-gritty” details of the executive search industry.
Understanding the following list is crucial for making an informed decision regarding your organization’s executive search:
- Executive search firms’ role in the business landscape.
- Common types of search firms.
- How executive search firms are compensated.
In this blog, we’ll break down each of these three critical questions, so you can make the best possible decision for the success and growth of your company.
What Are Executive Search Firms?
Executive search firms are highly specialized, highly skilled recruiting firms.
Instead of splitting their time, resources, and efforts filling vacancies at every level of the corporate ladder, executive search firms exclusively partner with organizations with C-suite vacancies or niche recruiting needs. This specialization allows executive search firms to probe deeper into the executive and expert talent markets than their generalist colleagues, leading to enhanced access, tangible influence, and improved placement outcomes.
Executive search firms’ commitment to consistently generating top-tier executive and expert placements also encourages them to invest heavily in developing highly effective, data-driven candidate search, selection, and evaluation technologies and strategies.
These tools, like the Medallion Matrix, help executive search firms eliminate subjectivity and bias from their hiring process, leading to more impactful, productive, and profitable placements.
Types of Executive Search Firms
There are two main types of executive search firms – contingency-based and retained.
Contingency-Based Executive Search Firms
Contingency-based executive search firms operate like traditional external or outsourced staffing partners. Their primary benefit is their low-risk, high-reward offer – their partners only pay for their services if their attempts to generate a placement are successful.
Most contingency-based search firms boast large client lists and rely on making rapid placements to generate profit. This leads contingency-based executive search firms to rely on tried-and-true candidate search and selection processes that empower them to quickly and efficiently identify, evaluate, and present potential matches to their partners.
Contingency-based executive search firms’ reliance on speed and volume often leads to higher levels of candidate activity and engagement at the expense of candidate refinement. This “wide net,” fast-paced ethos makes contingency-based firms ideal partners for organizations that want professional assistance filling a role but don’t require candidates with hard-to-find skills or experience.
Retained Executive Search Firms
Retained executive search firms operate more similarly to business consultants than traditional external service providers.
Retained executive search firms trade contingency-based firms’ high volume, fast pace, and quick results for a refined, strategic, and customized search process carefully crafted to identify, engage, and attract only the most perfectly qualified candidates to your organization’s vacancy.
Retained recruiters‘ commitment to creating comprehensive and customized search strategies for each client often leads them to conduct in-depth analyses and observations of their partners before launching their search.
This strategic observation period provides the framework for retained executive search firms’ talent acquisition processes, empowering their executive search experts to create pools of talent brimming with ideal performance, skill, and cultural matches.
How Are Executive Search Firms Paid?
Like most recruiters, executive search firms are paid by the organization experiencing a challenging vacancy – never the candidates themselves.
Most executive search firms base their fees on the contracted role’s first-year salary or compensation package.
Note: Decision-makers interviewing potential executive search partners must clarify if each firm’s fees are calculated using salary or total compensation – failing to do so can lead to costs that outpace expectations by thousands of dollars.
How Much Do Contingency Executive Search Firms Charge?
Most contingency-based executive search firms charge between 25-35% of the open role’s first-year salary/compensation package.
How Much Do Retained Search Firms Charge?
Despite relying on a different payment structure and providing bespoke executive search experiences, retained executive search businesses’ fees are still closely aligned with their contingency-based colleagues.
Most retained executive search firms charge 25-35% of the vacancy’s first-year compensation.
What Are Executive Search Firm Fee Structures?
Understanding the differences between popular executive search firm fee structures is key to choosing the right executive search partner.
In this section, we’ll break down the three most popular types of executive search agreements, so you can make an informed decision for your search.
1. Block/Flat-Fee Recruiting Agreements
Flat-fee or block executive search firms require an upfront payment before launching their search.
Some flat-fee executive search firms require their entire fee upfront, while others require an initial “launch fee” plus a percentage of the role’s first-year compensation. This percentage usually falls between 20-25% before additional fees. The primary benefit of flat-fee pricing is the convenience and simplicity of its structure.
Block or flat-fee fee pricing has historically been more common among conventional recruiting firms (particularly for filling high-volume, seasonal roles). However, it is becoming more popular in the executive search industry due to its convenience and simplicity.
2. Contingency Recruiting Agreements
Unlike flat-fee firms, contingency executive search firms only get paid when they finish the entire search, selection, and placement process. Average contingency fees range between 20-30% of the role’s first-year compensation.
The non-exclusive nature of contingent recruiting agreements encourages contingency firms to rely on casting wide nets quickly and often to find active candidates. While this often makes contingency search firms excellent partners when recruiting intermediate and mid-level positions, their business model doesn’t always offer the attention, discretion, and commitment to a search required to reliably place high-level executives and niche specialists.
The reliance on speed and upfront volume at these firms often generates a flurry of early interest from active candidates. Unfortunately, this model prioritizes easy-to-fill opportunities and these firms can spend less time or simply stop working on roles that become challenging.
Even more, their non-exclusive nature allows contingency recruiting firms to introduce the candidates to multiple companies including competitors. If your role proves time-intensive for a contingency firm to fill quickly, they may move to other projects that represent faster wins.
3. Executive Search Retainer Agreements
Executive search firms that use retainer agreements represent an evolved take on the traditional role of executive search firms.
Much like management or strategy consultants, retained executive search firms seek to build long-lasting, exclusive partnerships with their clients that equip them with the insight and access needed to generate top-tier executive and specialist placements.
Instead of “playing a numbers game,” retained executive search firms devote their time, efforts, and resources toward pursuing relationships with passive talent that represent the perfect fit for your company and culture. Retained executive search firms typically charge an upfront fee to begin a search with total project fees 25-35% of a role’s first-year compensation.
The Cost of Not Retaining an Executive Search Partner
While many organizations are (unfortunately) intimately aware of the consequences of relying on general recruiting teams to fill niche specialist and high-level executive roles, they don’t often recognize the cost of not working with a qualified executive search partner.
Let’s look at three common costs companies face when they don’t optimize their executive search:
- Lack of Interest: The market for crucial leaders that can deliver top results has never been more fierce. Without access to a global network of passive talent across industries and functions, most companies fail to generate the interest required to drum up a pool of high-value candidates. The market for highly specialized and niche candidates can be just as competitive.
- Lengthy Time-to-Fill: Did you know 60% of hiring expenses are due to wasted departmental head and managerial time? Partnering with a skilled executive search firm can drastically cut down on your time-to-fill while requiring little involvement from the rest of your team.
- Executive Churn: Failing to retain an executive or specialist that took months of effort and tens of thousands of dollars to recruit is unfortunately a common experience that many companies go through. Without a fine-tuned, data-driven, and objective process for ensure the new talent’s success, an unfortunate number of businesses suffer cyclical churn that limits growth and harms morale.
How Medallion Partners Can Help You Find The Perfect Candidate
Medallion Partners has connected world-class executives and experts with exciting organizations for over 15 years. Our team of executives-turned-recruiters leverages the best technology on the market to create, expand, and maintain global networks of talented and diverse individuals making waves across industries.
Contact us today to learn more about how we leverage our unmatched access to world-class talent to make transformative placements for our clients. There is a reason over 98% of our placements are still in their roles after two years. We make sure that every one of our partners ends up with an ideal fit both professionally and culturally.
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