Retainers have a bad reputation and for valid reasons. Many talent search and recruiting companies are eager to take clients’ money but aren’t always delivering equivalent value. In this article, we’ll look at when and why retained searches are helpful (and why you shouldn’t throw the baby out with the bathwater, so to speak), and then I’ll explain how to negotiate a retained search agreement to protect your company.
Why Use a Retained Agreement instead of a Contingency Agreement
Retained agreements are typically used for senior-level candidates such as Presidents, CEOs, CIOs, COOs, and CFOs. The search firm typically spends time with the executive team learning about the company culture, responsibilities of the position, and desired background of the perfect candidate. A lot of time is spent up front, creating the specifications and job descriptions for the position to ensure an ideal fit.
We have found that candidates who search firms pursue usually will ask the recruiters if the search is retained. Executive-level candidates want to know if the company is serious in its approach to hiring the right candidate, and many of them have learned that the answer to this question offers insight.
Retained agreements are also used for hard-to-find candidates because the search firm will focus on your search and spend a lot of time pursuing these candidates. This will take time and will pull recruiters away from other searches. The search firm wants to make sure that if they work hard on your search that their efforts will be rewarded.
Exclusive agreements can work just as well in many cases. Unlike contingency agreements, where multiple firms are hired to search simultaneously but only one is paid, exclusive agreements give the search to only one firm. (Using two firms for the same search is rarely a good idea, for several reasons. See How to get the best effort from your recruiting firm.) From the client’s point of view, the difference between a retained agreement and an exclusive agreement is that in the exclusive agreement there is no upfront investment and the client only pays when a candidate is hired.
The main problem with contingency agreements is that they give recruiting firms little incentive to dedicate significant resources to the search and qualification process because they run the risk of not making the placement.
Questions to Ask to Avoid Getting Burned
Before you select a firm and pay money upfront, make sure that the firm has a pool of appropriate candidates. Have they recently completed similar searches? Do they have a proprietary database of candidates? Who is the recruiter that will be doing the search? (Many times the recruiter that negotiated the agreement is not the person that will be searching for candidates. Make sure that the person doing the searching has the experience to deliver candidates.)
Negotiating the Agreement
Over the last year, I have spoken with numerous molecular diagnostics, life science, and CLIA lab companies that have had a bad experience with retained agreements. The most common problem is that the company pays a search firm a portion of the fee upfront and the search firm does not deliver viable candidates. Recently I spoke to a CEO that paid half of the entire fee upfront and received no viable candidates three months later. (The standard upfront payment is 1/3 of the candidate’s projected base salary.)
If you need to conduct a retained search and want to protect your company, then make sure that the agreement contains a performance guarantee. A performance guarantee states that if the search firm does not deliver at least 2 viable candidates within a specified time period, the initial payment is refunded. Viable candidates are to be determined by the client and can be based on events such as in-person interviews.
The time frame for the submission of candidates should not exceed 45 days. If the search firm has knowledge of the industry, finding candidates in 45 days should not be a problem.
The second payment should be made after two viable candidates have been identified and are moving forward in the process. The final payment is due when the candidate accepts the offer and resigns from their current position.
The Most Critical Factor
The most important factor affecting the success of your search is selecting a firm that is ethical and cares about your success. There are many search firms to choose from, but not many of them are committed to the client. Just like any successful business relationship, there needs to be a true partnership between the company and search firm