Executive search, informally headhunting, is a specialized recruitment service used to source candidates for senior, executive or other highly specialized positions in organizations. The method usually involves commissioning a third-party organization, typically an executive search firm but possibly a standalone consultant, to research the availability of suitable candidates working for competitors or related businesses. Having identified possible recruits that match the client’s requirements, the executive search firm may act as an intermediary to investigate whether the individual might be interested in moving to a new employer and also carry out initial screening of the candidate, negotiations on remuneration, and the employment contract.
An executive search firm is a type of professional service firm that specializes in recruiting executive human capital for their client companies in various industries.Executive search agents/professionals typically have a wide range of personal contacts in their industry or field of specialty; detailed, specific knowledge of the area; and typically operate at the most senior level of executive positions. Executive search professionals are also involved throughout the hiring process, conducting detailed interviews and presenting candidates to clients selectively, when they feel the candidate meets all stated requirements and would fit into the culture of the hiring firm. Executive search firms typically have long-lasting relationships with clients spanning many years, and in such cases the suitability of candidates is paramount. It is also important that such firms operate with a high level of professionalism and confidentiality. When corporate entities elect to use an outside executive search firm, it is usually because they lack the internal research resources, networks, or evaluative skills to properly recruit for themselves. Using an outside firm also allows the corporate entity the freedom of recruiting from competitors without doing so directly, and the ability to choose among candidates that would not be available through internal or passive sourcing methodologies. Executive search firms are national and international. Many specialize in a particular business industry sector.
The contractual relationship between client and executive search firm falls into two broad categories: contingent and retained. Contingent recruiters are paid only upon the successful completion of the “search assignment.” Retained recruiters are paid for the process, typically earning a recruiting fee in three stages based on the anticipated compensation of the executive.
High-end executive search firms get a retainer (up-front fee) to perform a specific search for a corporate officer or other senior executive position. Typically, retained searches tend to be for positions that pay upwards of US$150,000 and often far more.
Search fees are typically 33.33% of the annual compensation of the recruited executive. Fee payments may be made in thirds, 1/3 of fee paid on initiation of the search, 1/3 paid thirty days later, and the final 1/3 paid thirty days later or upon placement of the candidate. Alternatively, a fixed fee may be established. Retained search firms provide a guarantee to do an assignment over if the hired candidate leaves before one year as long as there has not been a material change in the position requirements or management team.
In a retained search, the fee is for the time and expertise of the search firm. The firm is employed to conduct the entire recruitment effort from startup until the candidate has started working.
Retained recruiters work for the organizations who are their clients, not for job candidates seeking employment, in some countries, such as the UK, recruiters are not legally permitted to charge candidates. In the U.S. job candidates may pay an up front retainer to a consulting or career counseling firms to assist them in their job search.
Search firms generally commit to off-limits agreements. These agreements prevent a firm from approaching employees of their current clients as candidates for other clients (for instance, if a headhunter recruits the new CEO into Boeing, they will agree not to recommend Boeing executives to other companies). Since they act as management consultants working in the best interests of the clients for whom they conduct searches, it would be counterproductive to simultaneously remove talented executives from those client companies. Search firms may decline assignments from certain companies, in order to preserve their ability to recruit candidates from those companies. Some large search firms may insist on guarantees of a certain number or dollar value of searches before they will put an entire company “off-limits”.
Delimited or engaged search
Another form of high-end executive search, delimited or engaged search, is often improperly categorized as retained search, although there are distinct differences.
Similar to retained search firms, delimited/engaged search firms require an up-front fee before engaging the search. Unlike a conventional retainer, however, the delimited/engaged search commitment fee is refundable if the recruiter fails to achieve a hire or other deliverable specified in the contract. Moreover, the delimited/engaged search commitment fee does not follow the typical 1/3, 1/3, 1/3 model of retainers, but rather is a relatively small up-front fee which is discounted from the final placement fee of 25-35% of the successful candidate’s first year compensation.
Both retained and delimited/engaged searches involve partial payment prior to filling the job, and the contracted recruiter has the search exclusively. Therefore, the search can be customized to the client organization’s needs, with the search professional providing a consultative service throughout the process.
While both retained and delimited/engaged searches serve client employers rather than job-seeking executives, delimited/engaged search contracts always (as opposed to sometimes) state a future date when the project must be completed or the downpayment refunded.
As stated, contingent search firms are remunerated only upon the successful completion of the search—typically when the candidate accepts the position. These recruiters may earn 20% to 35% of the candidate’s first-year base salary or total remuneration as a hiring fee; the fee may also be calculated to include the candidate’s (that is, the successful hire’s) median or expected first-year bonus payout. In any case, the fee is (as always) paid by the hiring company, not the candidate/hire. Contingent firms in some of the emerging markets may quote fees in the range of 12% to 20% as well.
Daedalus Consulting is a boutique search firm with 2 decades of experience in the space across different sectors, levels and geographies. We commenced business with talent acquisition services for IT companies in India and North America. We have since served companies in diverse sectors – Manufacturing, Engineering, Infrastructure, Finance, Retail, E-commerce, Healthcare, Consulting etc in the last few years as well as work across borders for such searches. At Daedalus, we have always chosen to work with select companies for select positions rather than the mass hiring that typifies many companies in our industry. There needs to be a sync with the client’s DNA and an appreciation of the value of human capital in making a difference to their business.
Daedalus’ Search practice works with both retained (CXO Levels) and contingency arrangements for other positions with MNC companies. Our value-add for companies is far higher than other search firms and helps us hire the best talent for our select customers. Our strengths come from hands-on industry experience, strong database across levels built over more than a decade, widespread candidate referrals, access to premier fora and alumni networks, research and market mapping expertise, internal consultants with technology and business backgrounds and ‘best practices’ like in-depth analysis of the role, organization structure and culture, client market positioning and competition, candidate mapping, etc in search and selection. Last but not least, the ‘Can Do’ spirit.
We are not the biggest or most advertised search firm in the market but our calling card is quality and our credo is ‘that failure is not an option’. So if you are looking for that niche talent, that X factor that makes the difference, then do talk to us.