Recruiters: Managing Search Vendors

Recently, we’ve been diving into the ins and outs of recruiting – when to hire a recruiter and your relationship to your recruiter.  Now, we get into the kinds of recruiters and who to call for what purposes.

In my last post, we talked about whether or not you want to own the recruiting process generally or manage professionals who do the recruiting for you.  The good news is that whatever your decision, there are recruiting partners that will support you.  Following on the heels of that post, this post breaks the kinds of recruiters down into those who are focused on vendors you manage – their approach, fees, and guarantees.  Later I will give you an overview of the partners, like TalentFront who manage recruiting for you, while you own all of their outputs, relationships, and results.

On the managed front, your options include executive, contingent, and staffing firms.  Each plays a unique role in talent acquisition and it is not uncommon to have all three operating at once in a firm.  Generally, however, there is a ring-leader on your side – either a human resources professional or talent acquisition leader or even a board of directors who oversees the activities of these firms.  It is extremely important for someone to be a designated point of contact in order to ensure that information about the search is collected/reviewed and that candidates are assessed in a timely fashion.  The lack of a “bird dog” can lead to excessive delays, more fees, and worse yet, the loss of great candidates.

Executive Search Firms – Executive search, or colloquially “head-hunting” refers to the hunt for an executive, i.e. CEO, CFO, Vice Presidents, and in some cases director-level talent.  These firms are known for the extraordinary research and client care/feeding that goes into finding a candidate who will oversee a large organization, portfolio, or budget.  Although each has a methodology, every search represents a unique challenge and therefore requires a custom approach involving hours of developing the job specifications, the hunt strategy and days, weeks, months approaching dozens of candidates on your behalf looking for the exact right match.  You should expect their hunt to be extensive, but you are not likely to see any more than five candidates and often three or fewer.

For these one-of-a-kind searches, firms have a compensation cut-off — $150,000 in annual salary is the lowest I have heard in the DMV, but most won’t take a search for under $250,000. These firms will charge anywhere from one-third of the compensation package to a firm, fixed fee that could be as much as 100% of the compensation depending of course on the difficulty and importance of the role.  Fees are paid in thirds – one-third at the start, one-third at the presentation of candidates, and the final third when the candidate starts.  Others charge monthly for the service.  Generally expenses such as travel and meals are extra.  Firms offer guarantees that range from 90 days to a year – should a candidate leave prior to the end of the guarantee period, you will be provided with another candidate at no additional cost to you.

Contingent Search Firms – The most popular kind of search firm is the company that takes your search and their fee is “contingent” upon them finding the right candidate for you.  Contingent firms work mainly on mid-level roles, but can tackle executive search especially in their area of expertise or if they have your confidence as the client.  This is a highly competitive marketplace and firms specialize in competency areas like finance/accounting, marketing, sales, technology, IT or industries like startups, nonprofits, hospitality, government contracting. Often, the leader of the firm has a compelling track record in a particular area and builds his/her practice around that expertise.  He/she has a database filled with candidates with backgrounds in this area.

Fees for a contingent search, start at 15% of compensation and top out as high as 35% for the most hard-to-find roles, but the majority charge 20%.  Often if you expect to do a lot of work with one firm, you can negotiate the first few searches and have the remainder paid at the higher rate.  Fees are paid when the candidate starts, however, a lot of firms will not take your search if they know that you are reaching out to multiple agencies.  Some will weed out clients by charging a deposit — $2,000-$5,000 depending on the search – which can be applied to the overall fee. However, if you decide not to go with their candidate, they keep the fee; this is often called a “con-tainer” – a blend of contingent and retained search. All will offer you a limited guarantee of no more than 90 days – some will decrease the fee they might owe you as the time lapses and others will provide another candidate if the candidate leaves.  It is important to read your agreements and contracts carefully and know that you can negotiate.  Negotiation is more successful with smaller firms than it is with larger firms, still I would attempt to negotiate regardless.

Staffing Firms  — Although you may not think of a staffing firm as part of your search mix, many offer candidates on a temporary-to-permanent basis, an arrangement that is especially prevalent in the administrative arena.   It represents a good way for you to try out a candidate before you “buy” him or her. The key to a successful “temp-to-perm” relationship is to ensure that the candidate who is in the arrangement is truly interested in joining you.  It is as much your responsibility to assess the candidate’s interest as it is that of the firm.  Your interview before the engagement starts must be as extensive as a regular interview for any other role in your firm.  Failing to recognize this could result in lost time and hourly rates that are well in excess of your compensation budget for the role.  It is important to note that like contingent firms, staffing firms are industry and role focused.

Fees for temp-to-perm arrangements involve a certain number of hours the candidate must work at the hourly rate plus a finder’s fee.  Often a percentage of the temporary hours can be applied to a finder’s fee, i.e. if you hire the candidate the first week, you owe the full fee; if you hire him or her after six months, the fee could be nothing.  Like contingent recruiters, fees are variable and only paid when the candidates start.  Fees range from 10 to 25% with a very limited guarantee because the assumption is that you had enough time to vet the candidate before hiring him or her.

There you have it, the breakdown of the types of recruiters who focus on lining up qualified candidates for you. As long as you find a recruiting partner with whom you can establish a good working relationship, managing your recruiter can produce the results you are looking for. Of course, as a good manager, you’ll need to do your homework and stay in contact with your “bird dog” to avoid hiring a pigeon when you really want a pheasant.

As I mentioned, TalentFront does things differently. So if you have had a great experience with an executive, contingent, or staffing firm, I’m all ears. Please pass along any referrals. And while you’re at it, if you have any outstanding candidates refer them to us as well. We recently set up a new Applicant Tracking System (ATS) with client job listings, which makes adding candidates to our pool easier than ever.

Next time, we’ll discuss where TalentFront fits into this whole puzzle. Here’s a preview: we get to know your company (almost as well as you do) and then we run the recruiting process as if it were our own.

Stay tuned!

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