Contingency Search and Retained Search Agreements for Recruiters

There are many questions that a recruiter (and a recruiting firm owner) should ask themselves. Here is one such question:

“Should I work on contingency or retainer?”

A fair question that deserves a fair answer. However before we answer it, we have some groundwork to lay. That groundwork involves the different types of searches that exist for recruiters. That’s because it’s not as simple as “retained vs. contingency recruitment.”

The reason: there is more than one type of contingency search agreement and more than one type of retained search agreement. So let’s explores these types of contingency and retainer agreements!

Contingency and retained search agreements for recruiters

Specifically, there are two types of contingency searches and there are two types of retained searches. Let’s start with contingency-based recruitment first, since that type constitutes the majority of searches that are conducted by third-party recruiting agencies.

Let’s recap what a recruitment agency exclusivity agreement is. It’s pretty much what it sounds like: a company agrees to work with an agency exclusively on a search assignment. In other words, they give the job order to that firm and that firm alone. With a non-exclusive search, on the other hand, the company gives the job order to multiple recruiting agencies. That creates a competition of sorts among them.

Now that we’ve recapped that, let’s define a contingency recruiting agreement. In both the contingency model and the retainer model, the recruiting and hiring process actually works the same.

  • A company has an open position.
  • It hires a recruiter to help fill it.
  • The recruiter identifies, recruits, and presents the top candidates in the marketplace.
  • Those candidates enter the company’s hiring process.
  • The organization eventually hires one of them to fill the position.

The difference between the contingency recruiting contract and the retained recruiting fee agreement is who and when the recruiter is paid for the placement. In the contingency model, they’re paid only after the company or client has hired a candidate that the recruiter presented. According to the recruiter fee agreement, their fee is “contingent” upon the company hiring their candidate.

Make sense? Excellent! Then let’s look at the two types of contingency search assignments:

#1 — Non-exclusive contingency search assignment

Based on everything that we’ve discussed do far, this type of contingency recruiting agreement involves a search assignment that:

  • Has been given to more than one recruiting agency.
  • Will not involve payment of any kind until a candidate has been successfully placed.

With a recruiter contingency fee agreement, there is not a deep level of commitment on either the part of the organization or the recruiting agency. The agency will not get paid unless they place a candidate. Therefore, the agency owner can decide how much time, energy, and resources to spend on the contingency recruitment assignment. Not only that, but the owner can submit the same candidates for this search and for other non-exclusive contingency searches. Bonus!

On the other hand, the company gave the job order to multiple recruiting agencies. The hiring official won’t be overly disappointed if one of them does not submit suitable candidates in a timely fashion. Or at all. And they probably won’t be upset if an agency submits candidates to both their organization and other organizations at the same time. Double bonus!

#2 — Exclusive contingency search assignment

Based on everything that we’ve discussed do far, this involves a search assignment that:

  • Has been given to just one recruiting agency.
  • Will not involve payment of any kind until a candidate has been successfully placed.

Okay, now things just got a little more serious. That’s because the search involves a signed exclusive search agreement between the recruiting firm and its client. As a result, the firm will devote a greater amount of time, energy, and resources to the search than it would if the search was non-exclusive. Specific time frames are typical of this type of arrangement. That means there are set timeframes for the sourcing of candidates, the presenting of candidates, the scheduling of interviews, etc.

There’s also a time frame tied to the recruiter retainer fee agreement. Usually, the cap on that time period is 90 days. In other words, the company wants to hire a candidate within 90 days. From the recruiter’s perspective, they want to fill the position in far less than 90 days. For one thing, the longer a hiring process drags on, the more likely that candidates will drop out of the process. For another, the faster the recruiter fills the position, the faster they receive their contingency recruiter fees. And since they’re working an exclusive search, they’re highly motivated to fill the position as quickly as possible with the best candidate available because they know another recruiter is not going to “beat them to the punch.”

Okay, now that we’ve discussed the two types of contingency search assignments, let’s move on to retainers. There are also two types of retainers. One is the engagement fee, and the other is the standard retainer search.

#1 — Engagement fee retainer search assignment

This is sort of like a hybrid between a contingency search and a retainer search. And yes, since it’s technically a retained search, it’s an exclusive search. However, unlike a contingency search, the recruiter will receive money up front because of the recruitment retainer agreement. The amount varies depending upon the search and the company, but the percentage is usually somewhere between one-fourth to one-third of the anticipated fee for placing a candidate. The firm will receive the remainder of the fee once a candidate is placed.

Keep in mind that this payment is non-refundable. Let’s say, for whatever reason, the firm does not place a candidate. Maybe the company pulls the search. Perhaps senior officials implement a hiring freeze. Heck, the company might go through a merger or acquisition. Regardless, the recruiting firm keeps the engagement fee. That’s as non-refundable as non-refundable gets.

This type of recruitment retainer arrangement occurs when an organization wants to fill an important position quickly. That’s why it’s willing to part with money up front to make it happen.

#2 — Standard retained search process

Whereas the above arrangement involves two payments, the standard retainer search assignment involves three. That’s because the fee is paid in three installments. The first installment is when the client signs the executive search retainer agreement. The second is paid at some other agreed-upon juncture. It could be when the candidate list is whittled down to a short list of three or five. It’s imperative that these payment junctures are identified beforehand.

It makes sense, though, that the third payment is made when a candidate has accepted an offer. Or started work at the organization. Or they’ve been there for 30 days. Once again, it’s up to the recruiting agency and their client to iron out the specifics of the payment terms and time frame.

Another difference between the engagement fee and the standard retainer involves ownership of candidates during the hiring process. With the latter, the recruiting firm is typically not able to present candidates to this particular client to other companies until the search has been completed. (Or unless the client specifically states that it has no interest in the candidates.)

Executive search fee agreement: preferences vs. circumstances

Contingency and retainer agreements are about more than personal preferences. (Although that does play a strong role). Some recruiters prefer to work on contingency only, while some work a combination of searches, and some primarily retainer searches. However, for those who are open to working all types, situation and circumstances are also instrumental.

That’s because those recruiters must utilize the type of search that best matches their client’s need. It all comes down to priority and urgency. If a client is putting a high priority on a search, it means there’s urgency tied to filling it. As a result, an engagement fee or a retained search might be in order. At the very least, the search should be an exclusive one. If, on the other hand, there is neither priority nor urgency tied to the search, then non-exclusive it shall be. A free-for-all for everybody!

Regardless, the goal is to deliver results. Regardless of the parameters of the search, delivering results is should be a recruiter’s focus. Doing so is the best way to generate business, increase billings, and increase client loyalty.

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