I’ve worked with hundreds of companies and thousands of financial executives. One thing that I have come to realize is that there is a common misconception regarding retained executive searches.
For those not familiar with the executive search industry, there are basically two different types of executive search: retained executive search and contingency executive searches.
A retained executive search is generally conducted by accepting a “retainer” which is a large lump sum payment that is received before the search begins. That payment is then applied to the total cost of the executive search.
The total cost of a retained search is typically 30% to 40% of the candidate’s starting salary. The retainer is often one-third of the total amount of the search. So, as an example – if you have a $300,000 CFO Position with a 30% total fee, the retainer would be roughly $30,000 and the total fee around $90,000.
A contingency executive search firm generally charges a fee of 20-30%, but there is no retainer. There is no money to be paid up front and a payment is only made if the candidate is hired. Most hiring managers that I have spoken with over the years prefer contingency search for the obvious reasons – you’re not locked in, there’s no retainer to lose, there are no hidden charges and you don’t pay a fee unless a candidate is hired!
The misconception that some people have regarding retained executive search is that because it costs more, it must be better. Of course, this could be true in some situations – a reputable and experienced retained search firm could certainly do a better job than an inexperienced contingency firm that doesn’t specialize in high-level positions. However, generally speaking, the assumption is false. A retained search is not better simply because it costs more and in many cases, a contingency-based search makes more sense.
One of the main reasons that this misconception exists is because over the years, large retained search firms have spent millions of dollars on marketing in an attempt to convince hiring companies that retained search is the more prestigious and professional option.
There are without a doubt excellent recruiters in both environments and I know and have worked with many of them, but there is one factor that I believe separates these two types of searches and makes all the difference.
A contingency recruiter only gets paid if he finds the absolute perfect candidate for the hiring company. Everything must be perfect – from the color of the candidate’s tie, to the way their hair is combed, to the way they greet the interviewer – everything must go off without a hitch and the hiring company must absolutely fall in love with the candidate for a hire to be made. If the company does not hire the candidate, then the contingency recruiter walks away with nothing.
Because of this, the contingency recruiter always has the greatest incentive to come up with the most highly competent, talented, credentialed, best communicating candidate in the marketplace!
I won’t go as far as to say that the retained search firm does not have pressure to fill the position, but they do not have the incentive that the contingency recruiter has once the retainer is secured. They know that they are going to make something off the deal even if they don’t fill the position. In fact, many retained search firms will actually charge a full fee, even if they do not fill the position. At a bare minimum, if the search is cancelled for any reason, the retained search firm keeps the retainer.
Another point to consider is that up to 35% of all retained searches go unfilled. The exact percentage varies from year to year but is somewhere between 30% and 40%. I have also heard endless stories of companies paying big retainers and being locked in to using a certain firm and then still having the same position open 6 months down the road.
My recommendation to any company looking to hire a CFO, VP of Finance, Controller or other Senior Level Financial Executive is to talk to a few well-respected contingency firms first. See if you can find a contingency search firm that you are comfortable with and one that has experience searching for the type of candidate that you are looking for. Make sure that they are actually going to recruit on the position and not simply post an ad. Find a reputable firm that you can trust and someone who has experience filling high-level financial positions within your company’s industry.
For those considering a CFO search or other financial executive search, what we usually tell people who are undecided about the type of search they want to go with is to give us 2 weeks and let us show you what we can do. If you’re not absolutely blown away by the service and the candidates that we have provided to you after those 2 weeks, we can part ways and you can choose another option to fill your position.
To this date, I honestly don’t believe that we’ve have had a single company who has decided to pursue other search options after working with us for this 2 week period.
If you would like to find out more, you can reach me directly at 1-888-417-1113. I would love to speak with you and find out how we can help you locate the perfect financial executive for your organization.
President and Executive Search Director
CFO Search, Inc.
We recruit for the following positions on a contingency-basis:
- Chief Financial Officer
- Group CFO
- Vice President of Finance
- Vice President of Accounting
- Chief Accounting Officer
- VP Corporate Controller
- SVP Finance and Accounting
- VP of Corporate Compliance
Benefits of contingency search:
- No Retainer
- No Exclusivity Contract
- No Hidden Charges
- No Travel Expenses
- You’re Not Locked In
- No Fee Unless Candidate Hired
- Quicker Fill Times
- Lower Cost
- More Flexibility