Why a Retained Search Firm Cannot do Contingency
By: Alan Davis
“East is East, and West is West – And Never the Twain Shall Meet”
One of the consequences of having a professional website is that we receive an increasing number of inquiries from companies who are impressed by the description of our recruiting process. However, many of them are only familiar with the contingency fee model, and expect us to offer it. Whilst contingency recruiting has its place, it is incompatible with the modus operandi of a professional retained search firm. Here’s why:
CONTINGENCY RECRUITING MODEL
The compelling allure of the contingency fee model is that the Client only pays when the hire is made. In addition, the Client can give the mandate to multiple recruiting firms, thus maximizing the coverage in the hope that it will increase the probability of a successful hire.
Under the contingency model, the recruiter’s compensation is typically (at least in part) commission-based. This arrangement drives the recruiter’s behavior in the following ways:
- They must concentrate their efforts on those mandates that they can fill with a minimum of effort. The more difficult mandates tend to get much less, if any, attention because the probability of filling them is slim.
- They must try to collect as many Client assignments as possible in order to have a sufficient pool of mandates against which they can promote their candidates.
- They must try to collect multiple mandates of a similar nature from different
- Clients in order to maximize their chances of placing a candidate in whom they have invested time.
- The more Clients that show interest in a candidate, the better (especially if a bidding war starts, as this will serve to drive up the starting salary, and hence
the placement fee).
- It becomes very difficult for the recruiting firm to be loyal to any one Client.
A relevant analogy is the one that states that the more mud you throw against the wall, the more will stick. Same thing applies to candidates; the recruiter has to play the numbers game in order to make enough placements to make a living.
The consequences of these behaviors become very apparent to the Clients and manifest themselves in the following ways:
- The recruiter has a temptation to submit candidates regardless of their suitability in the hope of making placements.
- There can be pressure on the Client to interview and hire.
- Bidding wars can break out between competing Clients for the same candidate.
- Candidates may be lost to competitor organizations.
- Clients are constantly bombarded with requests for new mandates.
Under the contingency model, the relationship between effort and reward is out of balance.
In order of priority, the beneficiaries of the contingency recruiting model are:
- The Candidate: Gets a choice of jobs – a better job at the highest possible salary.
- The Contingency Recruiter: Makes the placement, and generates income.
- The Client (almost a by-product of the process): Gets the bill, and once in a while a hire…that is if the position wasn’t too difficult to fill.
The contingency recruiting model typically lacks rigor in its processes. Orders are typically taken over the phone and take up no more than three lines in the order book. The contingency firms generally consider the idea of visiting a Client in person to obtain a full briefing on the requirement revolutionary!
The contingency model makes it impossible for the recruiting firm to focus effort on an individual Client, or an individual mandate, because there is no guarantee of being paid for their efforts. It is the economic impact of the relationship that drives the recruiter’s behavior.
RETAINED SEARCH MODEL
Retained search firms employ a rigorous process and typically apply a great deal more due diligence into the definition and execution of the mandate than under the contingency model. The retained search model targets the best available talent, not only the active job seekers, who do not necessarily possess the best profile.
Under the retained search model, the recruiting process is highly structured and well defined. The basic information- gathering tool, the Job Requirement Checklist, is a 15-page document, which is completed collaboratively between the Client and the search firm. It is complimented by a Client-produced job specification and at least one, and depending upon the complexity of the mandate, multiple, face-to-face briefing meetings.
The perceived disadvantage of retained search is that the Client has to pay, regardless of outcome. However, this obligation to pay, by the Client, is repaid by an obligation to perform by the recruiting firm.
“The principal differentiator between contingency and search is that under the contingency scenario, the recruiter has an incentive to fill a position, whereas under the retained model, it is more than an incentive to perform, it is an obligation.”
So why can’t recruiting firms offer both models of payment? The principal differentiator between contingency and search is that under the contingency scenario the recruiter has an incentive to fill a position: under the retained model, the recruiter has an obligation. If we tried to do contingency mandates alongside the retained mandates, we would have to give priority to the retained Clients, and the contingency Clients would receive little or no attention.
THE DECISION TO GO EAST OR WEST
Contingency recruiting can be very effective for high- volume, low skill, or low impact positions. In these circumstances, there is no compelling argument to employ the stringent practices of a retained targeted search firm.
However, for high- impact positions, it makes more sense to pay a qualified professional firm to commit trained, experienced and motivated resources to a process designed to identify and attract the best candidates in the business.
This is why we’re in the search business, and why we don’t do any contingency recruiting. We recognize how seductive the prospect of contingency recruiting can be to a Client. There is no commitment to pay until the hire is made. However, that same lack of commitment by the Client not to invest in the recruiting effort is reflected by a lack of commitment by the contingency recruiter in not devoting the required level of effort to get the job done.
If the Client has the luxury of time to fill a position, they can always try the contingency route first. However, the nearer the hiring date approaches, the more
compelling the reason becomes to employ a search firm with committed resources to get the position filled. (Under this scenario, all we ask is that if you want due search
process done, give us time to do it!)
By having the Clients’ confidence and commitment under the retained search model, we have been able to satisfy our customers and maintain the high standards of professionalism that are expected of us. It is a great way to build enduring Client relationships.