Finding the right people to run your business is crucial. But sorting through hundreds of applicants may not be the best use of your time. You can outsource this work, of course, but it can be helpful to understand the options before deciding what might be right for you. So, in this post, we explore the difference between retained search vs contingency search models, then provide insight into a hybrid approach.
Table of Contents
What is a Retained Search?
A retained search is when you hire an executive search firm or individual recruiter, work with them exclusively to find the right fit for your team, and pay a “retainer” fee, regardless of the outcome. Retained search models are common when hiring highly qualified candidates for senior-level executive positions, such as CEOs or CFOs. But they can also be helpful for other types of searches.
How Do Traditional Retained Search Firms Work?
Retained search firms charge a premium for their services, both in the commitment level required and the actual cost. But they justify the expense by pairing you with a dedicated resource who is an expert in your industry and will partner with you to ensure success. Let’s look at the typical pricing model and search process to give you an idea of what to expect.
You will negotiate the full fee upfront when hiring a retained recruitment firm. Although pricing can vary, most engagements land somewhere between 25-30% of the desired employee’s annual compensation. In other words, if your base salary budget for a CEO is $300,000 a year, the fee for the recruiter will be roughly $75,000 – $90,000.
Now, it is worth noting that there are some nuances here. For example, some firms charge a percentage of base salary, while others consider all compensation (salary, bonus, benefits, etc.), and a few even ask for equity. Given this variability, be sure to clarify the details before you press forward. Then, once you agree on the pricing structure, the fee is typically broken down into three equal payments:
- 1/3 due immediately
- 1/3 due when interviews start
- 1/3 due when the candidate signs the employment contract
One final thing to look for is a guarantee clause. Most retained search contracts stipulate that the fee is refundable if the employee leaves the company within a particular timeframe due to poor performance or fit. But, depending on the role in question, they may prorate this arrangement. For example, they might refund 100% of the fee if an executive-level employee leaves within three months, 50% if the exit occurs within six months, and 25% if it happens within a year.
Retained executive search firms typically have a recruitment process that fits neatly into the three-payment schedule, so an engagement might go something like this:
The recruiter holds a discovery session with your internal team to clarify the scope of the position and gain insight into the company. They will strive to gather as much information as possible about the following:
- Reasons why the position is open.
- Expectations of and budget for the role.
- Company culture, size, and composition.
- Organizational growth plans.
- Interview process.
- The sales pitch for the job – i.e., what would make the role appealing to an ideal candidate?
Depending on what they learn, they will review the existing job description and give feedback so you can refine it. Then, once you settle these details, the recruiter will contact their network.
One of the hallmarks of a retained search is that recruiters are discerning and favor employed candidates who are not actively looking for new roles. That gives you access to a unique and potentially higher-quality pool of candidates. Therefore, the recruiter might share a few examples to see if they are on track before discussing the position with interested parties and narrowing their list to those most suited to the role.
Once they have a refined list of candidates, the search firm will present its findings to the hiring company. At this point, they won’t bother you with resumes. Instead, they explain why they feel each person might be qualified, and together, you decide whom to interview.
With a shortened list of candidates, the recruiter organizes the interviews and prepares each applicant with information about the company’s financials and growth plans. They also discuss concerns about company culture, salary expectations, etc. – eliminating much of the guesswork for both parties so you can focus on other things during the interview.
Then, after the interviews, there will be another meeting to discuss your feedback and questions about each candidate. That will help you narrow down the applicants to just two or three who will come back for a second round of interviews. Or (in some cases) you may decide to keep searching.
When you find someone you like, the recruiter can help with negotiations, or you may prefer to take it from there – reengaging when it is time to present the offer. From then on out, the recruiter plays the role of mediator and works with both parties to find a win-win and get the contract signed before collecting their final payment.
When is a Retained Search Model Best?
I mentioned earlier that retained searches are typically for high-level executive search processes. But that is not the case in all situations.
For example, some roles are challenging to fill. They require hard-to-find candidates with unique skill sets and deep industry experience. When this is the case, partnering with a retained search firm specializing in your industry or a discipline is a great way to augment an internal staff that occasionally gets overloaded or lacks the skills or connections to fill certain roles.
This model is also ideal when companies must fill critical positions but keep the search confidential. Since retained search firms work on an exclusive basis, you can count on them to be discrete. The flip side of that benefit is also true. Sometimes companies choose to work with a retained search firm so they can announce it to the world, making the role sound prestigious (to attract better candidates) and impressing shareholders.
But, of course, the only way to decide if this is the right approach for you is to compare retained vs contingency search models.
What is a Contingency Search?
The contingency search arrangement differs from retained search in that the recruiter’s fee is “contingent” upon their success, and the contract is not exclusive. In other words, the recruiter only gets paid if you hire one of their candidates, and they must compete with any other firm you choose to engage, including your internal staff
How Do Traditional Contingency Search Firms Work?
Since contingency recruitment firms don’t get paid unless the search is successful, they rely on volume, provide a lower service level than retained search, and are less expensive. As a result, contingency search is more the norm for companies using search services, especially when hiring for low-level, mid-level, or even senior positions requiring less expertise.
Like retained recruitment, you must negotiate contingency search fees upfront, with most contracts landing between 20-25% of the desired employee’s annual base salary. Said differently, if you are looking for a software engineer and plan to pay a yearly salary of $120,000, the fee for the recruiter might be between $24,000 – $30,000.
The payment only becomes due when the candidate signs the employment contract. And most firms guarantee that employees will remain with you for 90 days, or they will refund a prorated amount. The specifics can vary, but you can generally expect 100% if the employee leaves within 30 days, 50% if they leave within 60 days, and 25% if the exit occurs within 90 days.
The contingency search model is more widespread than the retained search model because it is cost-effective, applicable to a wide range of positions, and companies gain access to a broader pool of candidates. However, since recruiters are not guaranteed payment for their work, there is less support, so when you hire a contingency search recruiter, you must engage closely with the process, which will play out as follows:
- After you agree to work with a firm, they will assign a client relations contact to your account and ask you to send a job description and list of your requirements.
- The client relations contact then shares that information with their team so they can post the job on relevant platforms and collect resumes from candidates actively searching for new roles.
- The recruiters examine each resume for a potential fit, then send the most promising ones to you for review, with a brief write-up on each candidate.
- When you come across someone interesting, they arrange an interview.
- After the interview, the recruiter asks if you wish to schedule a second meeting or move on.
- This process is repeated with each candidate until you hire someone.
So, there are some similarities between contingency and retained executive search models, but they are not the same.
When is the Contingency Search Model Best?
A contingency search arrangement can be highly effective for many organizations, especially those that need to hire people as quickly as possible. However, since it is a highly transactional and less consultative process, most companies reserve this approach for low, mid, or some senior-level positions.
That doesn’t mean you won’t find quality employees. On the contrary, many contingency search firms specialize in specific industries or disciplines and can rapidly produce a great selection of qualified applicants. But you must remain engaged and do much of the weeding out yourself vs. depending on the recruiter to do that work for you.
Of course, if these two options seem too extreme, a hybrid model may be more amenable to you.
What is a Hybrid Model?
Some firms have reviewed the pros and cons of retained search vs contingency search and found both lacking. That has resulted in hybrid models, which combine aspects of standard talent acquisition search models to create a better balance for both parties.
How Do Firms With Hybrid Models Work?
The structure of hybrid agreements varies from those that are very close to one end of the spectrum to others that are a true blend of features. However, I will attempt to generalize below.
Most hybrid models aim to combine the best of both worlds with a pricing commitment that falls in the middle.
For instance, the engagement fee may be closer to the high end of a contained search model (approximately 25% of the desired employee’s annual base salary). Then, you might agree to pay a modest retainer fee and grant the recruiter temporary exclusively, with a second installment due (and the potential for continued exclusivity) if you are happy with the first round of candidates.
And, like the other models, reputable recruiters stand by their work, guaranteeing that the employee will remain with your firm for a specific timeframe.
The process for hybrid models can also vary, depending on the firm you engage. For example, at The CEO’s Right Hand, we provide fractional CFO and human resource services, including recruitment, under a hybrid model. Given our expertise, we only perform finance executive searches for small and mid-sized companies.
Finance executives must have deep industry and subject-matter experience. So, we assign each client a dedicated, knowledgeable resource and collaborate with them throughout the engagement to ensure a good fit. However, since the upfront fee is small, the process is much like a contingency search in that we send our clients resumes after we have reviewed them instead of presenting a refined and packaged selection of candidates all at once. Yet, you can count on us to be selective.
Unlike a traditional contingency search firm, we work closely with our clients and get paid a nominal fee for upfront work. But our rates are lower, and our approach is less rigid than a typical retained search company.
When are Hybrid Models Best?
Hybrid models are ideal for companies with specialized needs that prefer a more hands-on approach than you might get with a contingency search firm but find the commitment, intensity, and cost of retained search overwhelming. Firms that offer hybrid models are less common, so you may need to ask around to find someone in your space.
Pros and Cons of Retained Search vs Contingency Search vs Hybrid Models
For your convenience, the following chart summarizes the pros and cons of the various models. You are welcome to bookmark this page or download and save the chart for future reference.
Retained Search vs Contingency Search vs a Hybrid Model Comparison
In a retained search, recruiters curate a short list of high-quality candidates, including, or even favoring, people not actively looking for a new role.
In a contingency search, recruiters post the job publicly and welcome more applicants. That can result in a larger and broader set of motivated candidates.
The contract requires exclusivity and (in return) offers confidentiality and a dedicated resource who partners with you to tailor the search to your needs.
Since there is no exclusivity clause, recruiters must compete to fill the role and tend to do so quickly.
Recruiters take the lead in refining the job description, identifying and screening candidates, arranging interviews, and facilitating negotiations, freeing your internal staff for other tasks. That can be particularly helpful for hard-to-fill roles.
Hiring firms only pay recruiters for successful searches, and rates are typically lower. That makes contingency search more affordable.
Retained searches are typically more costly due to higher fees and a commitment to pay for the recruiter’s time, regardless of the outcome.
Since recruiters only get paid for successful searches, they rely on volume. Unfortunately, that can result in lower-quality candidates and less recruiter engagement with challenging clients.
Contracts require exclusivity, which can feel restrictive to some companies.
Due to the lower fees and lack of commitment, you get less support. Instead, you write a job description and fan it out to recruiters, who send back a stack of resumes to sort through.
Since recruiters are highly discerning, a retained search typically results in fewer candidates. That can be great if you are happy with the results, but frustrating and time-consuming if the recruiter must start over.
Recruiters source applicants via job postings and resume searches and are less discerning, which can result in candidates with fewer qualifications.
Recruiters who operate under hybrid models aim to provide the best of both worlds. Although terms vary, the goal is to share the risk. You typically pay a nominal retainer fee, get a dedicated resource, and agree to limited exclusivity. Firms with hybrid models are often smaller companies that specialize in certain industries or disciplines, so they can offer high-caliber candidates at reasonable rates.
Retained Search vs Contingency Search: Key Takeaways
Retained searches are generally best for executive-level roles or recruitment processes that require confidentiality, high visibility, or niche candidates, but they can be expensive. Contingency searches are typically more affordable but better for low-to-mid-level roles you must fill quickly. A hybrid model might be more suitable if your needs fall in the middle. We encourage you to explore our executive search services to see if The CEO’s Right Hand could be right for you.