The Two Types of Executive Search Firms & Fee Structures
There are two types of executive search firms to consider when selecting a firm to fill a leadership position in your company — retained executive search firms and contingency search firms. The differences between contingency versus retained executive search firms lie in:
- How they conduct their searches
- The fee structure when conducting a search
- The incentives behind what quality of candidates the search firm provides for you
Here we have outlined the two types of executive search firms and corresponding fee structures.
Contingency Search Firms
Contingency search 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 search 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.
Retained Executive Search Firms
Retained search firms work hands on with the company, developing a close relationship to conduct a focused search for a candidate over a specific period of time. Retained executive search firms usually:
- Charge more than contingency or container firms
- Specialize in placing upper-level management, C-suite positions, and roles with where deep, very specific qualifications (both professional and personality qualifications)
- Invest valuable time into their client companies, making sure to align the company culture, values, and purpose with the best-fit candidate(s)
Generally, retained search firm fees are about 30 to 35% of the estimated first year salary for the candidate hired. With retained executive search firm fees, payments are typically made in three installments:
- The first payment, one-third (1/3) of the total fee is paid to begin the search.
- The second third is paid 60 days into the search.
- The final third is paid once the chosen candidate is hired.
This retained search fee structure is typically optimal for both the client and the executive search firm because:
- Both are fully committed to the process.
- Both are in strong partnership to find the right leader for the company.
The two types of executive search firms exist to provide organizations with different needs for filling positions. Retained firms conduct higher level searches to find proven executive (VP, C-Suite) leaders that exemplify the cultural alignment and proven track record the business needs to drive results.