Retained vs. Contingency

When a critically important leadership role needs to be filled, what factors determine which recruiting strategy will be the most effective, and why?

Companies that seek to hire high-performing talent, they have three options:

  1. Manage talent acquisition internally
  2. Enlist one or more contingency recruiters for sourcing and minimal vetting
  3. Retain a search firm to frame the search parameters and marketing strategy, target specifically qualified candidates, vet them before they are presented to the hiring executive, and then manage the search process, end to end

Internal Talent Acquisition

Using the first option, a well connected hiring manager may tap his or her professional network for referrals, often a stellar approach depending on the breadth and quality of the peer referral sources in that executive's network.  Simultaneously, an internal recruiter may be tasked to source potential applicants, typically by posting the position alongside all the company's staff level openings, and then lightly screens applicants over the phone against the requirements in the job description, presents suspects to the hiring manager to do actual qualifying, then orchestrates interviews  internally. Ultimately, the hiring manager selects a finalist for an offer. The company maintains full control of the process, and minimizes recruitment costs. This can be highly effective for staff and lower middle management searches, when the position is well understood and there have been many previous role models, against which candidates can be compared.  

That said, there are distinct disadvantages to internal sourcing, when it comes to executive level positions:

  1. The most highly qualified candidates (“A-players”) typically are employed elsewhere, not job hunting, and are less likely to see or respond to an advertisement; passive candidates get missed
  2. An internal recruiter, more accustomed to screening applicants over basic requirements, may well turn off sophisticated candidates, especially if there is a generation or "style" gap
  3. Most internal recruiters do not have time to thoroughly qualify candidates, given the backlog of commodity level positions that need to be filled across the company
  4. The hiring executive bears the real burden of vetting and qualifying candidates
  5. Often overworked internal recruiters often risk political capital with the hiring manager/team when unexpected deficiencies emerge about the candidates during interviews
  6. If a search lingers without a satisfactory hiring for 4 months or more, the available candidate pool turns toxic, not only turning off viable prospects for this position, but for most positions. Skepticism can cloud the company's brand, often for a year or more

Contingency Recruiting Firms and Retained Search Firms

For available resource, urgency and quality reasons, many organizations utilize the services of external recruiters. But, how do they decide whether to use one or several competing contingency recruiters, or a single, dedicated retained search firm?

The contingency search process is geared to identifying prospective candidates rapidly and in high volume — using a scour the earth approach to harvest and register the most resumes with the client before other firms do, though not necessarily delivering the most qualified candidates available.  

In contingency search, significant research and in-person interviewing cannot be applied to the hiring organization’s needs, because the business model dictates velocity of submission, not submission of vetted candidates only. Without exclusivity, and in competition with other firms and from the company’s own job board and internal talent acquisition resources, a contingency recruiter has no assurance of being paid for services rendered, unless he or she registers a resume before any other recruiter does, or the individual submits that resume to HR.

The competitive contingency business model dictates that the contingency recruiter focus energy on sourcing and registering as many resumes with the client as possible, whether they are appropriate for the position or not. Investing time to qualify candidates works against the recruiter’s likelihood of being the first to register those candidates, so quality takes on secondary importance. Moreover, it is in the contingency recruiter’s own best interest to register every resume with multiple potential employers, as any registered resumes may end up residing in those company databases for up to a year, each one a potential commission downstream. Contingency recruiters typically work with a large number of concurrent job openings for clients who may compete against each other, using databases of known candidates, looking for matches on paper and sending those candidates’ resumes to hiring execs for actual qualifying.  It is a numbers game. The candidates are commodities.

A retained search consultant always works with exclusivity on a search and is expected to thoroughly vet and pre-sell a limited number of pre-qualified candidates to be presented to just one client. A retained consultant lives or dies with his or her reputation earned from each performed search.   No clients are put in competition with one another, as a matter of contractual obligation and professional ethics.  The client contracts with the retained consultant to attract, vet and deliver only the most qualified and most interested candidates, then to present the client’s offer and to manage the negotiation process through successful closure for the client.

Neither contingency nor retained executive search consultants accept fees from individuals for the purpose of helping them to find a job, though staffing and placement firms may. However, since the contingency search business model, by its own definition, forces contingency recruiters to simultaneously present candidates to as many clients as possible, their actions can generate a bidding war.  Retained consultants are not motivated to market candidates at all.  They are being paid for the process of selecting the best candidate so they can be more objective about whether a particular professional is the right choice.

There are other stark differences between retained search and contingency firms:

  • Retained search firms conduct exhaustive interviews of candidates, in-person, whereas contingency firms perform cursory interviews of candidates, primarily over the telephone.
  • Whereas contingency recruiters tend to spend less time on initial research and specifications (and seldom meet company management in person), retainer based firms make it a point to thoroughly know their client and the open position’s responsibilities and requirements before commencing a search.  In the latter’s case, it’s not about ‘selling’ a company to a candidate, or vice versa.  It’s about ensuring the best, long-term fit for both parties.
  • Retained search firms focus their recruiting and evaluation efforts on a targeted spectrum of defined candidates, most of whom are not in active job market; they are process and results-oriented.  Contingency firms focus opportunistically on candidates who are actively seeking new employment and are thus placement-oriented — often to the detriment of their client.  The best candidates available often are not those actively seeking employment.
  • Retainer based firms provide their client thorough documentation, including a written assessment of a candidate's strengths and weaknesses, position and compensation history, written references, and motivations.  Contingency recruiters typically provide a client a resume and salary requirement.  The latter’s vetting process is about responsibilities, roles, dates and titles, as opposed to measurable accomplishments, which requires hours of ‘eyeball to eyeball’ discussions and reference checking to ferret out and validate.
  • Retained firms thoroughly prepare candidates before client interviews with details of the position's requirements and the client's environment and history, whereas contingency recruiters often neither have the in-depth background information nor the time to do more than send their candidates on interviews with much more than a cursory understanding of the position or the client’s expectations.
  • Retained search consultants personally handle a maximum of three to five concurrent assignments on average, whereas contingency recruiters work with a multitude of open job orders.  Again, without a guarantee of payment for services performed, contingency recruiters cannot afford to invest much time in any single search.
  • Retainer based firms typically present two to five pre-screened, highly qualified candidates to the client.  Contingency recruiters submit a high number of minimally screened resumes to increase probability of an eventual placement.  Therefore, in the latter case, the burden of screening and qualifying is placed on client personnel.
  • Retained firms are generally reputable and offer a professional long term guarantee and commitment to thorough, ethical practices and results.  Contingency firms typically offer only a 90-day prorated money back guarantee, leaving the client to decide how best to replace the initial mis-hire.  In contrast, retained search firms typically offer a 6- to 12-month no-fault guarantee that covers complete re-initiation and fulfillment of the original search.

Value vs. Cost

Contingency firms usually charge a fee based upon a percentage of base salary (12 - 24%), whereas retained search firms charge a percentage (25 - 33 1/3%) of the hired executive's total estimated first year's compensation (base salary, plus estimated annual bonus, sign-on, RSU's, etc., plus expenses. The value consideration hinges on the level of effort expended and the quality of the results received.

While there always are exceptions to any rule, understand that in the majority of cases, the business model of the firm drives these characteristics more than the capabilities of its recruiters. The value of an individual recruiter (judgment, experience, ethics and thoroughness) can only be fully considered within the context of the business model.

Testimonials

"We just completed a long and challenging search with Diligent Partners for a partner-level executive for our management consulting firm.  Completing a search like this for a small, culture-driven firm was no easy task, and we put both George and Scott through the ringer with our selectiveness, stubbornness, and hundreds of questions.  Both George and Scott did a great job working with us, walking us through all the details, and most importantly, finding several extremely well qualified candidates for us to meet with and ultimately hire.  Our search came with some self-inflicted bumps along the way, and I was impressed with the manner in which Diligent Partners stuck with their commitment to us from day one to the first day on the job of our new executive.  We liked their candidates so much, we ended up hiring two."

Greg Long
Director & Co-Founder, Caiman Consulting

"George and Scott have just completed a most professionally effective engagement for one of my critical IT Director positions.  Every step of the process was made clear and was executed with precision.  Their sourcing generated for my organization a viable cadre of leader-candidates whose credentials were aligned with our requirements and yet reflected variations in focus, personality, and style.  Their assessments were spot-on, just the right balance of reality and optimism.  Their leader-candidates were so well qualified that even those not selected proved to be strong candidates for other opportunities in my organization.  DP's work is the most satisfied I've ever been with an executive search firm's performance."

Tom Ream
Regional CIO, Sacramento-Sierra Region, Sutter Health
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