Should You Work With a Contingency or a Retained Search Firm?

Posted by Bob Corlett on February 18, 2013

Job seekers are always curious about how search firms work. Who pays the fees? What are the differences between a contingency recruiter vs a retained search firm? Which is best for the job seeker?

First things first. You can pay a career counselor to help you write your resume, or to help you plan your search, but no search firm should ever charge you. Ever.OK, now let's move on.

Search firms charge their fees to employers. The real difference is when they charge and how much they charge.

Retained versus contingent search is simply a choice of business models.  Neither model is inherently better for you as the job seeker. Neither model is inherently more professional or more ethical. Neither business model means that the recruiter is better informed about the job, or more knowledgeable about your profession.

But there are very real differences in your experience as a candidate.

If a search firm works on a retained basis, they are essentially paid by the employer to research and find great candidates — and it is presumed that any candidates uncovered from that research are “owned” by the employer until they are removed from consideration.  The entire candidate pool “belongs” to whoever paid for the research.  The retainer firm wants the employer to hire the most qualified, compelling candidate from any source — either in the pool found by the search firm, or drawn from an employee referral.  It’s all the same to them. (This is the model Staffing Advisors uses).

In a contingency basis, the search firm takes on the risk and expense of developing relationships with lots of candidates (which is why they often specialize in just one functional area).  They did the work and took the risk, so essentially, they ”own” the candidate pool.   To ensure they get a return on their candidate research investment, they must present those great candidates to lots of employers.  The employer committed nothing, and therefore has no right to the pool of candidates, so the search firm is wise to present the best people to multiple employers.  This is why some employers feel their interests are better represented by a retained search firm and some job seekers feel like they are better represented by a contingency search firm.

The contingency search firm wants ANY employer to make a compelling  job offer to their candidate, while the retained firm wants the employer to make an offer to ANY compelling candidate, regardless of source. The contingency firm gets paid only after a candidate accepts a job offer. The retained firm earns their fee by conducting the search process and is usually paid the majority of their fees within 60 days of starting the search. And to add complexity, some search firms use a blend of the two approaches.

Search fees vary widely, but can be as low as 10-15% of the placed candidate's annual salary all the way up to 33% of annual salary, but again this entire fee is paid by the employer, not the candidate. (Some retained search firms have a minimum retainer fee of $75,000).

So how can you tell if you are dealing with a contingency vs. a retained search firm?

It can be difficult and company websites do not always reveal it. But there are clues, and you can always ask the recruiter who contacts you. If it is not a confidential search, we always disclose the name of our client early in the recruiting process. We are not worried about a candidate applying directly to our client--we have an agreement to be paid either way, so our clients simply forward any resumes or internal candidates to us. If a firm publicly discloses their client's name early in the recruiting process, it is often (but not always) a retained search firm.

A contingency search firm is only paid when a candidate they present is hired. They are essentially in a foot race with the employer (or sometimes even another search firm) to present candidates quickly. Whoever presents the candidate first earns the fee. Some employers engage a contingency search firm, but hope to hire on their own to avoid the fee. For this reason it's wise for contingency search firms to avoid disclosing their client's name too early in the recruiting process. There is nothing improper about this, the business model requires it. If a search firm is representing you simultaneously to several clients, you are definitely working with a contingency model firm--a retained search firm should never do this.

I hope this helps.

Topics: Working with Recruiters or Search Firms