There are 3 types of executive search firms to consider when selecting a firm to fill a leadership position in your company. The differences make up how they conduct their search, the fee structure when conducting a search, and the incentives behind what quality of candidates the search firm provides for you. Here we have outlined the 3 types of executive search firms and corresponding fee structures.
Contingency firms are only paid once you hire a candidate they have presented to you. Thus, their pay is contingent on selecting candidates to fill positions as quickly and efficiently as possible. They also tend to take on as many clients as they can to maximize revenue. Therefore, contingency firms typically direct their efforts towards mid- to lower-level positions.
These firms will charge roughly 20-30% of the candidate’s first year salary. But because they only get paid once the search is completed and the candidate is hired, companies must keep in constant contact with the search firm and express a strong desire to continue through the entire process.
Container firms require an upfront fee and only begin the search once this fee has been paid. This ensures that the client is committed, while the search firm acquires surmountable pressure to perform a quality search.
The fee structure differs slightly from that of contingency firms. The upfront fee is a flat fee of around $5000 to $8000. Once the search is completed and the candidate has been placed, container firms then charge about 20-25% of the candidate’s first year salary as compensation. This type of structure provides incentive for a stricter quality approach to conducting the hiring process.
Y Scouts is a retained executive search firm. Retained firms develop a hands on relationship with the company and are hired for a specific period of time to conduct a search. Retained firms charge more than contingency or container firms, but specialize in placing upper-level management and positions where qualifications, both professional and personality-wise, are higher. These firms invest valuable time into the company making sure to align the culture, values, and purpose of the client with that of the candidate.
The overall fee charged by retained search firms is 30-35% of the estimated first year salary of the candidate. However, payments are typically made in three installments. The first third of the fee is paid to begin the search. The second third is paid once candidates have been selected and the interview process has begun. The final third is paid once the chosen candidate is hired. This structure is optimal for the search firm, knowing that the company is fully committed to finding the right leadership for their business, and for the company, knowing that they are paying for the best service they can get.
The three types of executive search firms exist to provide companies with different needs for filling positions. As far as incentives, retained firms conduct higher quality searches and provide businesses with leadership that excels on numerous levels, not just on paper.