You’re Getting Jobbed by Your Search Firm

Employees have grown increasingly dependent on search firms to fill managerial posts. But not all search firms are up to the task.

The consultant also rightly points out that top candidates generally have no qualms about asking corporate clients some thorny questions. That’s particularly true if the employer is going through a rough financial patch, or has been involved in a financial scandal of some sort.

An employer who is caught unaware by such questions isn’t likely to make a great impression on candidates. It’s the recruiter’s job to make sure a client knows the questions are coming — and is prepared to answer them.

Of course, it’s not easy for a search firm to deliver bad news to a client. But Barry Honig, president of Honig International in Tenafly, N.J., says recruiters should offer frequent updates to customers — whether the news is good, bad or indifferent. What’s frequent? Whatever the recruiter and the client decide, says Honig, although once-a-week phone calls, e-mails, or written reports seems to be about right.

4. Standard Fee, Substandard Guarantee

“The price [of a retained search] is fair, but it’s still a sizeable investment,” asserts Moyer of Moyer/Sherwood. Then again, he says, “no one uses search firms for the easy ones.”

The hard truth is, finding the right executive to fill a top-level post can be an expensive pursuit. And despite the importance of finding the best candidate for a job, the cost of a search can be a big issue to most CFOs.

Generally, retained search firms adhere to the “one-third” standard, says John Mestepey, vice president at AT Kearney Executive Search. That is, search firms charge one-third of the candidate’s first year’s cash compensation, which includes salary and bonus. Most recruiters also tack on their own travel expenses and the travel expenses of candidates, as well as phone charges, overnight mail service, and dinner tabs.

Some firms are flexible with the fees, dropping their rates to as low as 20 percent — particularly for highly prized customers. Still others require a stiff 40 percent of the candidate’s first year compensation.

But the 33 percent rule remains an industry standard. What isn’t an industry standard: a contract that does not stipulate that a candidate will stay on the job for a year once an offer is accepted. Mestepey notes that search firms usually guarantee that a prospective hire will stay in a position for a set period of time. Typically, the worker warranty ranges from a year to 18 months. So a three-to-six month warranty is a sign that a search firm is not willing to stand by its work — a bad sign.

If the executive leaves the position while the warranty is still in force, the search firm runs another search — at its own expense. There are a few exceptions, including change of ownership at a company or a substantial change in the employee’s responsibilities.

Of course, some CFOs may be unwilling to swallow a 33 percent fee, with or without a warranty. Herbert Birman, CFO of MIS AG North America, says the pricing models of retained-fee recruiters wasn’t cost-effective for the $65 million-in-sales company. He points out that MIS regularly hires sales executives at annual salaries between $70,000 and $100,000.

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