Seeking a better deal with executive search firm

Seeking a better deal with executive search firm

Andi Y. P. Martosubroto, Senior Consultant, Consult Group

With the increasing competition in the business world as a
result of globalization, especially with the implementation of
the ASEAN Free Trade Area (AFTA), it is imperative that companies
ensure that they have the most talented professionals on their
team.

For many reasons such as time factor, resource limitations,
and the sensitive matter of recruitment, companies often turn to
executive search companies and ask for their assistance in
identifying best professionals in the market and hire the most
suitable individuals for their team.

Nowadays there are many executive search or recruitment firms
that offer various types of recruitment services. These companies
might provide services for a particular industry, a certain level
of position, or even specialize in certain regions.

However, the common theme with these services is that they
charge their clients either a contingency fee or a retainer.

Now, I am going to discuss the pros and cons of the payment
structures and how they really affect your organization.

Suppose you are the decisionmaker for recruitment matters in
your company and you are reviewing two proposals for recruitment
services. Your immediate reaction will most probably be to go
ahead with the consultant that charges on a contingency basis.

I don't blame you. On this basis no fees are paid up front,
you just have to wait until the consultants come up with a
selection of candidates, interview them and if one of them is
hired then you pay for the consultant's services. Everyone is
happy.

So why would anyone engage in a recruitment service that
requires a retainer? Your first question with this type of fee
structure will be: Why pay up front when there is no guarantee
that I will get the right candidate?

Well, I guess the advantage of the contingency fee and the
disadvantage of a retainer are easily identified, as mentioned
above. However, what is the advantage of a retainer and is there
a disadvantage with contingency?

Contingency-based searches are conducted in an environment
where the search firm has no obligation to deliver results (as
the client has not made the commitment of a retainer).

As with all types of businesses, "contingency" firms are
always revenue driven. Being revenue driven without an
assignment-completion commitment will, nine times out of 10, be
directly reflected in the way the contingency searches are
prioritized.

The fact is contingency assignments will always first address
the assignments that are easy, i.e. those where there is a higher
chance of them securing a placement fee.

This tendency is also relevant to firms with consultants who
are paid on a commission basis. In order to increase their
paycheck, consultants will immediately target the positions that
are easiest to fill. Meanwhile, the client's most critical
vacancies remain just as they are: vacant. What this actually
means for a client is that assignments that are deemed
"difficult" are not properly addressed, as there is less chance
that the consultants will be able to complete them. Hence they
will often sit on the back burner for months.

Sometimes, despite the firms' promises, they are not addressed
at all. As the client has not made the commitment of a retainer,
the search firm has no obligation to deliver results. In these
situations, for the employer, the apparent reduction of risk by
not paying a retainer can actually turn into a huge loss when
that key vacancy remains unfilled. Needless to say, the increased
"hidden cost" of this workload can be substantial.

If a critical vacancy is given to a contingency firm that
fails to deliver after a period of time, a client may have saved
on a retainer fee. However, the real cost to the client is having
the unfilled vacancy. In most cases this cost will be
substantially more expensive than the sum of all recruitment
fees. It is also important to point out that with or without a
retainer, the total cost of the assignment remains the same.

To sum it up, whether contingency fee or retainer, both
methods have their strong points and are most advantageous when
applied to certain positions.

Conducting recruitment assignments on a contingency basis for
junior or noncritical mid-level positions is fine, particularly
when time constraint is not an issue. These nonurgent,
noncritical junior to middle level staff vacancies, when handled
by a contingency recruitment firm, can often prove to be the most
cost-effective solution for the client.

However, for senior level or positions of vital importance, I
do not believe contingency recruitment is able to successfully
deliver first-rate candidates in an agreed time, simply due to
the manner in which the majority of contingency recruitment is
managed.