Professional third party recruiters can be a very valuable resource to any company’s talent acquisition strategy. As the sheer number of open requisitions increase, third party recruiters are available to fill the gap.
But what is the best recruiter contract for your company? Many companies believe that a traditional contingent search is the best contract to use. You only pay a recruiting fee if a candidate is hired. However, the contingent contract may not be best depending upon the position. Let’s take a closer look.
First, why should your company consider contracting with a professional recruiting firm? Most often, employers use “third party” recruiters when one or more of the following situations arise:
- You have trouble filling a position and there are no internal candidates.
- You have seen high turnover rates for the position and seek expert help.
- Your company has posted the position and has received a poor response.
- You do not have internal resources and would rather outsource the recruiting process.
- The position is highly specialized and you need a recruiter with special expertise with access to the appropriate candidates.
“When looking for a recruiter, you should not cut corners when it comes to fees. You get what you pay for. If a few extra thousand dollars in recruitment costs means better employees, it’s well worth it.” Jerry Sundheim, Contributor to Forbes Magazine.
Three basic recruiter contracts exist in the employment market today. Let’s explore each and discuss the pros and cons of each contract.
In signing a contingent recruiting contract, the company only pays a fee if the company hires a candidate submitted by the recruiter. Typical fees range from 25% to 30% in the current labor market.
I would not recommend negotiating a lower fee with a contingent recruiter in today’s employment. Why? First of all, contingent recruiters work on many assignments at one time. The industry standard tells us that contingent recruiters fill an average of 25% of the assignments that they accept. So, assignments with higher fees get more attention.
Second, with a contingent contract, there is really not a strong commitment on behalf of the company or the recruiter. If a search takes too long, or their client stretches out the hiring process, the contingent recruiter can easily stop the search.
Third, contingent recruiters like to work on assignments where there is a relatively large pool of candidates qualified to fill the position. If the position were highly specialized with a small pool of candidates, I would recommend a different relationship with the recruiter.
Last, contingent recruiters will submit candidates, one at a time, as soon as they are qualified. Why? They may be in competition with other contingent recruiters that you may have contracted with and maybe even your internal recruiters. Candidates that they submit will definitely be qualified, but may not be the most qualified for the position. We will talk more about that in the retained search section.
One advantage of utilizing a contingent contract is that you can utilize more than one contingent recruiter for the same assignment and spread out the risk of filling the open position. There are many professional recruiters that will only work on a contingency basis. However, if multiple recruiters contact the same candidate, it may give the candidate a bad impression of your company
Retained Search Contracts
Retained search firms are paid for the recruiting process whether a candidate is hired or not. Typically, retained search firms earn 30% – 40% of the candidate’s anticipated yearly compensation plus recruiting expenses. Fees are paid on a schedule of 1/3 of the fee due upon engagement, 1/3 due in 30 days and remaining 1/3 due in 60 days.
Retained search contracts will provide an exclusive relationship between your company and the search firm. Also, retained search firms will only submit qualified candidates to your company and not other companies during the search. Contingent search firms may submit the same candidate to several clients at the same time.
Retained search firms can be asked to evaluate both internal, as well as, external candidates. You will most likely be presented three of the most qualified candidates for the position all at once. Each job requirement is compared with each candidate’s qualifications side by side on a document called a “Slate”. The majority of the time, the final candidate is selected from the Slate.
Because retained search firms are not necessarily “on the clock” to submit candidates quickly, they tend to perform a deeper dive into the candidate pool.
“Contained Search Contracts” or “Client Priority Contracts”
This is my favorite contract. A Client Priority Contract is a hybrid between the contingent and retained contract. The recruiting fee ranges between 20% and 30% of the candidate’s first year’s estimated compensation. Typically, a non-refundable engagement fee of 20% of the total recruiting fee is paid to the recruiting firm, up front, with the remaining 80% paid upon a successful placement.
This contract is really the best of both worlds. The engagement fee represents a financial commitment on behalf of the company and the search firm is guaranteed some compensation if the assignment is cancelled. Also, the search firm will give you top priority over any contingent assignment that it is currently working on.
Ability Professional Network uses the Client Priority Agreement nearly exclusively on all assignments.
I hope this article gives you a better understanding of the three most widely used recruiting contracts and the information you need to make an informed decision.
Please let us know if you would like further assistance.
Ken Lazar, Principal
Experts in Recruiting Sales and Sales Management Professionals