What Do Executive Search Firms Charge?

05/09/2013

Most of the people in my neighborhood have never used an executive search firm, they are doctors, teachers, dentists, college professors, and government workers. They work in organizations where it’s incredibly uncommon to use executive search firms.

Even in Washington’s huge nonprofit and association market, where the use of search firms is prevalent, some organizations choose to engage search firms very rarely. We regularly work with people who have never engaged the services of an executive search firm before. So naturally people have questions about who pays (the employer always pays), when the fee is due (it depends on the search firm), how much the fee will be (it depends on the search firm), what services are delivered (it depends on the search firm) and what replacement guarantee is in place if the placement does not work out (it depend on the search firm).

Let’s start with fees. Search fees vary widely depending on the business model the firm uses.

Retained executive search firms typically charge 25 – 33% of the estimated total annual compensation a candidate is expected to receive in their first year in the position. (Many search firms include first year commissions and bonuses in the estimated total compensation figure, but not the cost of benefits.) Some portion of the fee is always due when the search commences, but the final fee is often dependent on what salary the candidate accepts. So if a search firm charges 30% of annual salary and places someone earning $100k, their search fee will be $30k. But if that same candidate negotiates for a starting salary of $110k, or a salary of $100k with a sign-on bonus of $10k, the search fee would rise to $33k.  Additionally, some firms charge back their expenses to the client, so the total fee can easily rise to 35% of total annual compensation. Staffing Advisors is a retained search firm, but instead of tying our fee to the candidate compensation, we prefer to charge a simple flat fee with no charge back for expenses. We set our fee in advance of the search based on the level of effort we anticipate, and our fees are typically 15% of less of total compensation. Like many retained search firms, Staffing Advisors handles executive searches in a wide variety of functional areas (and not just Accounting, or IT, or HR). Consistent with most retained search firms, we offer a replacement guarantee of a full year if a placement does not work out for any reason.

Contingency search firms do not guarantee to fill positions, but if they do, their fees are often between 20 and 25% of annual compensation. Contingency fees are usually due only after the candidate starts work, so if nobody is hired, no fee is due. Some contingency search firms are even willing to negotiate placement fees, but negotiating lower fees can sometimes result in a lower level of effort being spent on your search and a lower chance of filling it. Contingency based firms tend to specialize in one functional area (like accounting). If a placement does not work out, contingency search firms typically offer replacement guarantees from 30 days up to six months.

Some firms take a hybrid approach of requiring some portion of the fee in advance, and making the remainder contingent upon the placement. They key for you as the buyer is to understand which business model best suits your needs. For more insight into the differences between retained firms and contingency firms, read Contingency vs. Retained Search, Common Fallacies.


Dealing with a Work Avalanche

12/13/2011

Are you feeling overworked and understaffed right now? You’re not alone. Under-staffing is common during this stage of the business cycle. Some people think it is a long-term trend–calling it the “Job Squeeze.” Perhaps it is. I do know that work pressure has been building quietly for years in many organizations–like snow falling on mountaintops. And when something small triggers it, you are suddenly faced with a “work avalanche.”

Here is how work avalanches are created: When confidence is low, your organization responds to good news differently. You try to grow without corresponding staff growth. Headcount starts to trail revenue growth, and then falls further and further behind. Good news for the organization actually becomes bad news for the team. They were overworked before, and “good news” just makes it worse. Every new contract, new client, and new project just makes it harder to keep up.

How do you know you waited too long to add staff? Your best people are getting sick more often. You are seeing more preventable mistakes being made. Small issues cause tempers to flare, people are less tolerant of each other. They take things personally. Work just seems less fun. And eventually your best people burn out, give up, or quit–triggering an avalanche of work on the remaining team members.

Here’s the thing. Often, when you force your team to “do more with less” they are not doing more. They are making trades. They are trading long-term thinking for short term thinking. They trade planning time for reaction time. They stop making deposits into the relationship bank, and start making withdrawals–using up the goodwill they’ve built over many years. And the cost of that short term focus builds up… like snow building up on a mountain. Eventually the bill comes due in a work avalanche.

Here is what to do about it: When your hiring fails to keep pace with your growth, you can no longer afford to drag out the hiring process. But when confidence is low, that is exactly what happens. “Let’s try it first on our own, before we put it out to a search firm.”  Three months later the team is exhausted, frustrated, and at wit’s end. In your cautious desire to save money, you not only lost time and focus, you created even more risk–from people quitting.

Newsflash: When you are chronically understaffed, nobody on your team has the time or energy to do hiring on their own. When you are running from a work avalanche, you don’t want to make your backpack heavier.

If your business strategy requires you to keep staffing levels lean, you must be prepared to hire very quickly when you get good news. Either beef up your internal recruiting capabilities, have qualified contract workers on speed dial, or be ready to call in search firms the instant you know you need help.

Because standing still is not a good strategy when an avalanche  is bearing down on you.


What Kind of Recruiting Problem Do You Have?

09/06/2011

Not all recruiting problems are created equal. Sometimes you can just run ads and hire good people. Other times you might engage a search firm to call everyone in their database. Few hiring managers venture beyond those two stark choices: either tell HR to run an ad, or tell a headhunter to go sell your job to people in their Rolodex. But of course, these two fine solutions don’t resolve most recruiting problems. Which explains why very few hiring managers have a team full of top performers (even after they engage search firms).

Perhaps if you could better clarify your exact recruiting problem, you could solve it more decisively. And, after gathering data from hundreds of our completed executive searches, that’s exactly what we did. Now, before we accept any new search, we carefully assess how much intensity it will require in 4 common problem areas: Definition, Sourcing, Selection, and Decision Support

Although each of these problem areas require very different skills and levels of intensive effort, I notice that nobody ever asks me about three of them.  Instead, new clients only ask me about our candidate sourcing (recruiting) capabilities. I’m while I am happy to answer that we have superb sourcing capabilities, I also know that sourcing is only part of the solution. So let’s get into all four of the most common kinds of recruiting problems, and what you can do about them.

Definition intensity:  The owner of a small company needed more sales. He could not figure out how to get them, despite having worked in his industry for many years. His solution? Hire some salespeople to beat the streets, and let them figure it out. (He spent an hour trying to convince me what a great opportunity it was for a salesperson to come work for him). Like a medieval alchemist, he was trying to turn his sales problem into a recruiting problem. Except recruiting can’t solve a problem you cannot defineThis is true for any newly created role, or for the leader of any new initiative, but it is epidemic in sales hiring (just read this).

The intensity of defining job requirements might be as quick and easy as “Find me another person with attributes like Sally” or might be as complex and intensive as asking “Are we looking for someone to execute a strategy that already works, or are we looking for someone to discover a strategy that works?”  If you are hiring a search firm for their great Rolodex, but what you really have is a definition problem, all their sourcing cannot help you figure out who will be successful in the job.

Sourcing intensity:  One of the most grueling searches we ever conducted was for a nonprofit manager who decided that the only way she could meet her business objectives within her budget was to create a job that combined two fairly common skills that are almost never found together in nature. Kind of like looking for someone who is both a supermodel and a construction worker – theoretically possible, but highly unlikely. (Yes, I still kick myself for accepting this search). The problem was clearly defined, the skills desired were crystal clear, but the candidate sourcing intensity it required was off the charts. Not even 1% of the qualified people we contacted had any interest in the job as it was defined.

Sourcing intensity comes in two forms: it is either hard to find people with the skills you desire, or else the people you seek are plentiful, but just not that receptive to your job. Just because you can define what you want, and find people who can do it, there is no guarantee anyone actually wants your job. When you don’t have a compelling story to tell, you will lay flame to a lot of sourcing time. Is your location terrible, pay low, or job unappealing in some way? Are you looking for a left-handed, bi-lingual, Russian nuclear physicist? Does your ideal candidate receive more than 2 calls a week from search firms? Then your level of sourcing intensity will be equal to 10 other searches. And remember, if you hire a search firm to flatter, cajole, and sweet talk these rare, elusive, or high-maintenance people into your firm – you better know what was promised to accomplish that … and you will need an equally intensive plan to retain them.

Selection intensity: Once you have people interested in talking with you, how hard is it to decide who to spend your precious time with? In lower level positions, you need to know how to quickly winnow down hundreds of resumes without overlooking the “diamonds in the rough,” but in executive searches, you need a skilled interviewer to hone in on cultural fit, and to assess skills and strategic thinking. Very different skills.

To present a slate of 6 qualified candidates, sometimes we have to talk to 30 people.  Sometimes it’s just 12 people – but the conversations might last an hour and half each. We’ve found that the interviewing skill required and the interview time needed varies widely from search to search.

Here is a test of selection intensity: How keenly does your recruiter listen to you? Do they really understand what you are trying to achieve by making this hire? If your recruiter is better at talking than listening, or lacks business acumen, then this aspect of your search is probably being done only superficially. In fact, your search might be just a mindless hunt for the perfect resume. Without the proper selection intensity, you will almost certainly overlook great “out of the box” candidates and instead waste time talking with people who have a nice resume but are not a good fit.

Decision Support intensity: Searches often fail right at the finish line. Once you have a good candidate sitting in front of you for the interview, how hard will it be to forge a consensus among all the decision makers? Do you have a dysfunctional board or executive team? Is everyone rowing in the same direction, or are there stark differences in approach between key executives? Do you have a hiring manager who is so risk averse that they find almost any excuse not to hire?

If you cannot make a hiring decision in a timely manner, all of your other efforts might be in vain. Good candidates are repelled by internal political battles, and they certainly don’t wait around for indecisive managers. They (correctly) ask “If being hired is this haphazard and slow, am I really a good fit? And “If I am a good fit but decision-making is this slow, how excruciating will it be to work for them?”

So once you have a better definition of your recruiting problem what do you do next?

  • If your challenge is Definition, be sure you are working with someone who is thorough in understanding the job before they begin recruiting. You are at risk if all you had was a 15 minute phone call with the recruiter, or if they never “pushed back” or challenged your thinking.
  • If your challenge is Sourcing, be sure you understand how compelling your job will be to candidates.  Most hiring managers overrate how attractive their job is relative to other opportunities in the market.
  • If your challenge is Selection, be sure you have confidence in the person who is pre-screening candidates for you.  Challenge their thinking to be sure they are looking at candidates the same way you will.
  • If your challenge is Decision Support, be sure you are working with someone who has a process to resolve those differences.  Winging it and hoping for the best is not a strategy.

Why is Executive Search so Expensive?

01/11/2011

Once upon a time, twenty years ago, in a backwards country called telephone-land, all your news came from a thing called a newspaper.  And all your mail was delivered by the postal service.  And the telephone (land line of course) was the fastest way to reach someone.   Yes, twenty years ago, finding candidates and presenting job opportunities over the phone was a pretty expensive thing to do – so executive search services had to be expensive.

But now, if you live in a place I call “the world,” your news comes to you on your computer, most of your mail comes to you on … your computer (or your phone), and, if you still have a land line, your telephone calls disappear into a place called voicemail.

So if all the technology to find and reach candidates has changed, why is executive search still so expensive?

There are two big myths that have prevented executive search firms from using technology to lower the price of executive search.   But you’ll have to read my guest post on Fistful of Talent to find out what they are.


Who’s That Driving Around in Your Employment Brand?

12/16/2010

Hiring managers, who is that behind the wheel of your employment brand?  You’ve had 5 internal meetings to discuss the language on your new website, but then you hired a contingent recruiter to work on your job opening after talking to them on the phone for what, half an hour?

What exactly are they telling people about you, your company, and your open job?

When you engage a search firm, you hand over your reputation as an employer.  They are authorized to represent you (for the duration of their engagement).  It’s like handing over the keys to your car … with your company name emblazoned on the side of it.  They ARE your employment brand while they are behind the wheel.   And remember, they are talking to a lot of people about your company.

So how much control do you have over what they say?  In most cases, none at all.  So yeah, you probably want to know who you are dealing with, what their reputation is, and precisely what they will say about your job opportunity.

At Staffing Advisors, we craft a written marketing message for you, and give you a chance to look it over before we use it.  (You told us that you offer great work/life balance, but really don’t want to want to over-promise that?  Ok, no problem, we’ll delete that sentence…).  We want to be sure the message sets the right tone for skills, performance expectations, cultural fit … everything.

Then, when we deliver the message, someone with real credibility reaches out.  Kelly Dingee, our Strategic Recruiting Manager has real digital credibility.  She writes well enough to meet Jessica Lee’s demanding standards at Fistful of Talent (no easy feat), she was named one of the Top HR Digital Influencers by John Sumser over at The HR Examiner, and then publicly praised this week by both Kris Dunn and Glenn Cathey – that’s doing pretty well with HR’s digital royalty I’d say.

So yeah, Kelly looks legit when she reaches out to someone.  And that is reflected in how people respond to her.  (Test this for yourself.  Google the name of whoever you are trusting with your brand.  That’s what smart candidates do before they respond.  So how does it look?)

We’ve connected with over 25,000 candidates this year (people who were referred to us, or people we reached out to).   I hear about every single person who has had a complaint with the service.  This year, I talked to less than a dozen disappointed people – that’s less than one in two thousand who had a complaint – and remember, 24,900 of those people ended their experience with us by getting a rejection letter.

I’m not saying you need to hire us to protect preserve and defend your employment brand (although that is an excellent idea), and I’m not bashing how other search firms do business (Relax third-party recruiters, I’ve said for years that the contingency search model is perfectly valid).

I’m just saying you need to think harder about who you let drive your reputation around.  Because it matters more than you may realize.


What Exactly Does A Search Firm Really Do For You?

08/11/2010

Hiring managers are often disappointed with search firms.

Not coincidentally, search firms are often disappointed with hiring managers.

The root cause of this mutual disappointment is often a simple matter of unmet expectations.  And it starts with a (big) unexamined assumption about what the search firm is expected to do for you once you engage them.  So what, exactly, are your expectations when you hire a search firm?

If you are like 9 out of 10 hiring managers, you will say you expect them to “find the best candidates for the job” – end of story.

If they do that, you are happy, right?

Except quite often you are not happy when all they do is find the best candidates.  Like when the “best candidate” turns down a second interview with you, or takes another job, or when all the best people have salary expectations 30% more than you budgeted.   Yeah, if only hiring were so simple (Step 1:  Find good people  Step 2:  Hire them).

So, while “finding the best candidates” is undeniably important, it’s really just a fraction of the value a good search firm should bring to the table.  The reality is that finding great people and getting them to take an interview is, at best, a fourth of what you should be expecting from your search firm.    If you want to break the cycle of disappointment and make better hires, you need to expect more.

So here is what to look for in a search firm (or internal recruiter) beyond raw recruiting ability:

  • Market Knowledge:  A great recruiter should be able to share job market information – so your expectations are in line with market realities.   (HINT: You may not like it, but if they always agree with you, or if you never learn anything in talking with them, that is a sure sign that you are not talking to the right recruiter.  A recruiter who “goes along” with a hiring manager’s unrealistic market expectations is doomed to waste precious time on a long, protracted search failure. )
  • Candidate Assessment: A great recruiter should not only help you clarify what you are looking for in a candidate, they should also help you understand how to assess each candidate, and work with you to develop a rigorous screening process to evaluate each person on their merits.  They should challenge your unconscious biases so you consider “out of the box” candidates, play devil’s advocate when you “fall in love” with one candidate at the expense of considering others, and help you carefully look at each candidate from all angles.  (They should not be “selling you” on any one candidate, but rather challenging your thinking.  They need to encourage you to look beyond the superficial, easy answers and dig into whether the person is truly a good fit for the organization. In short, you want someone who treats executive search like a process, not a “sale.” )
  • Decision Support:  A great recruiter should be brilliant at managing the hiring decision process, gathering the key players, forging a consensus and getting to the hire/don’t hire decision in an orderly, methodical fashion.   (They should not sit back and hope that you get around to making a decision in a reasonable timeframe.  They need to be a catalyst for action – to ensure that the hiring project runs on a predictable schedule and does not get sidelined by other matters.  If they don’t appear “pushy” from time to time, they are being too passive.)

A great recruiter should be a full business partner – contributing  business acumen and executive judgment on a par with the hiring manager.  If they cannot contribute at this level, find another recruiter.  Similarly, if you do not trust your recruiter to play at this level, find another recruiter.

Now here is the real question, once you find a great recruiter (or executive search firm) who provides all this value, are you actually willing to listen to them?


Whose Problem is That?

05/06/2010

It is said that “success has many fathers, but failure is an orphan.”  When you make a great hire, everyone takes some credit.  But when you fail, well, there is always plenty of blame to go around –  nobody ever takes full responsibility for the bad hire.

Because hiring involves so many people, no one person ever seems to “own” it in a small firm.  The rogue hiring manager gets away with bad behavior, the HR department can often avoid responsibility for lackluster recruiting, and nobody corrects the CEO when they are out of touch with job market realities.

If you want to end the blame game and instead bring real predictability to your hiring, you need to decide who is responsible for solving the thorny problems that usually lead to hiring failure.  Problems like these:

  • When a hiring manager has not thought very deeply about the position they want to fill, whose problem is that to solve?
  • When your job description does not square with market realities (10 years executive experience and willing to do entry-level work for low pay) – whose problem is that to solve?
  • When your recruiting and outreach efforts fail to find at least 6 qualified and interested people in your price range – whose problem is that to solve?
  • When your hiring process drags on for months – whose problem is that to solve?
  • When a hiring manager repeatedly selects the wrong kind of  candidates – whose problem is that to solve?

You get the idea.  Someone has to “own” these kinds of problems, or they will persist for years, sapping the strength from all your recruiting efforts.

Oh, and one more thing?  Before you engage a search firm, ask them who they think is responsible for solving these kinds of problems.

While many search firms (like ours) actually enjoy resolving these complex issues, many others limit their role to candidate recruiting and would not dream of “intervening” in your hiring process.   While there are valid arguments to be made on both sides of that debate,  you – the buyer – need to understand what to expect in exchange for your search fee.  Confusion often leads to disappointment, and a continuation of the blame cycle.   (You might also want to read our previous post on the differences between contingency vs. retained search)


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