How to Hunt for a Headhunter

Experts and finance chiefs supply tips about paying recruiters, retaining them, and choosing between the boutiques and the big names.

The tasks of putting together and restocking top-drawer finance teams can present busy CFOs with a daunting question: How much time and effort can I put into picking talent?

The answer most often must be an unhappily expressed version of “not much.” While hiring excellent subordinates is obviously the most basic task of a finance chief, many don’t have the time to spend on the task. Thus, it ends up being delegated to executive-recruitment firms. But the story doesn’t — or shouldn’t — end there, experts suggest. By expending some effort in hiring a headhunter, senior finance executives can save themselves the considerable grief and expense that often arises when hires go awry. Says Wine.com CFO John Belchers: “The cost of making a [hiring] mistake is a lot more than the cost of a recruiter.”

To be sure, headhunters don’t come cheap. The cost of retaining a search firm can equal about 30 percent of a new hire’s signing bonus, moving expenses, and first-year cash salary combined, says CFO Stephen Wasko of privately held biotech Nanosphere Inc., which had sales of $3.5 million last year. Similarly, Wine.com, with $32 million in sales, pays out 30 percent to 40 percent of such costs to an executive recruiter. Both finance chiefs, however, report that their companies received good success in their finance hires for their money, including a controller for Wine.com.

When they work with recruiters, senior managers have a choice of two kinds of relationships: contingency searches and retained ones. In contingency searches, the client company pays recruiters only as slots are filled. The headhunter often competes, in such circumstances, with an employer’s other search channels: other recruiters, ads placed by the employer, and internal applicants.

In a retained search, on the other hand, the recruiter signs on with the company as the latter’s main partner for a specific search assignment. It’s the search method companies reserve for senior executives. The search firm quotes a fee per assignment. Unlike contingency search consultants, who are paid in full at the point of the employee’s hire, retained search firms collect three payments throughout the search process, the first of which is usually non-refundable. Companies also cover retained recruiters’ expenses, such as travel and phone bills.

The retained search is often the biggest item in the total cost of hiring an executive. But the investment usually comes with guarantees. For example, if the employee unexpectedly resigns or is terminated before the end of a predetermined guarantee period, the search firm will often repeat the entire search process for no additional fee. What’s more, while contingency recruiters tend to market any remotely qualified job seeker for a given position, retained headhunters provide customized searches for jobs with exact specifications.

Regardless of the kind of search a finance chief is after, it may take time to find the right recruiter. The index of Kennedy Information’s annual Directory of Executive Recruiters lists well over 650 executive-search firms that serve the finance function, including searches for professionals in special areas such as mergers and acquisitions and tax. Zeroing in on the one that best meets a particular company’s needs can sometimes be a neat trick.

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