The Truth about Headhunters

The differences between "retained" and "contingency" recruiters, while important for those seeking finance jobs to understand, are far from black and white.

When the phone rings and it’s a headhunter on the line, your first thought is probably not “What is this person’s business model?” Whether this is the right time to look into a job opportunity and, if so, whether this particular one could work for you, are understandably top of mind.

But the way a recruiter does the job and gets paid is worth paying attention to, because it could affect your willingness to work with that recruiter, the way you will be represented in the job market, and ultimately the chances of landing that new position, if that is what you wish. “Any time you’re talking about your career, it’s imperative to know the people you’re dealing with and what their practices are,” said Richard Dowd, president of Dowd Associates Executive Search in White Plains, N.Y., which specializes in finance jobs.

There are two broad categories of executive searches: retained and contingency. In both cases the hiring company pays for the service, but a headhunter performing a retained search gets paid regardless of whether the open position is filled, while one doing a contingency search is paid onlywhen it is filled. Most recruiting firms do one or the other, but some do both, depending on client preference.

Other differences between the two business models abound, but sorting them out is tricky, in large part because of pervasive rhetorical sparring between the two sides over which is the better approach and why, conspicuously marked by generalizations that apply to some players but not others.

C-Suites versus Cubicles

Certainly it is true that retained firms tend to work on higher-level searches — for CFOs, vice presidents of finance, controllers, and treasurers — while contingency firms more often fill mid-level positions such as accounting managers and staff accountants. “If you’re the CFO of a public company, the likelihood of contingency firms turning up appropriate opportunities for you isn’t that great,” said Dowd, whose firm does retained searches.

Contingency firms acknowledge that is generally true but note that some clients simply prefer the contingency model, either because they don’t want to pay for an uncompleted search or because they think having multiple firms compete on searches produces the best results. “I’ve done searches for all levels of employees, including CFOs,” said Tom Gimbel, CEO of The LaSalle Network, a Chicago firm that performs contingency searches, primarily for finance professionals.

At the same time, Gimbel said, it’s a mistake to assume that all retained searches are for C-level and other top positions. An often-spoken rule of thumb is that retained searches are used for jobs paying $250,000 a year and up. But, Gimbel told CFO.com, “There are a lot of one- and two-people shops out there that have some good relationships with companies and will do retainers for any amount of money.”

Turning over the Stones

Another difference is that the average retained search is generally considered to be more extensive. Because such searches bring big fees — the industry standard is one-third of first-year compensation for the job, including salary, performance bonus, and signing bonus — retained firms can afford to painstakingly research the market and vet candidates, often using in-house research departments. Contingency firms usually charge between a quarter and a third of first-year compensation, but since their searches are typically for lower-paying jobs, they earn far less per search.

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