Executive Search Prices: The Cost of Executive Search
Executive search prices vary wildly making it challenging for search buyers to figure out what an executive search will actually cost. Further complicating matters: search firms often do not list their pricing on their websites. However, you can estimate the cost once you understand what most companies spend on different kinds of recruiting services.
Going Out to Search or DIY?
To determine executive search pricing, the first question a company needs to answer is whether it wants to use a search firm or manage the search engagement in-house. There are firms that offer flexible unbundled search and recruiting research services to support internal executive search and recruiting efforts, a trend that has grown in popularity in recent years. Employers seeking full-service executive search services usually turn to a search firm.
Traditional Search Firm Models
For companies that want to go “out to search” there are two traditional search firm models: retained search firms and contingency firms.
- Retained: Retained executive search firms are paid a retainer to do the work of executive search. The fee is not contingent upon making an actual placement. Retained firms tend to concentrate on recruiting senior executives who are passive candidates — those who are not actively looking for the next job.
- Contingency: Contingency search firms are only paid when they make a placement. They tend to concentrate on recruiting candidates that are actively looking for their next jobs. While there is some cross over — mainly at the VP and Director levels — retained firms focus on executive searches, and contingency firms focus on non-executive search.
Traditional Executive Search Prices
The traditional search firm prices do not give clients an opportunity to save. Employers pay a full fee regardless as to whether the search takes a week, a month, or half a year. That’s because the pricing is not based on effort, the time spent searching, or the difficulty of a particular engagement. Rather, it is based on a percentage of annual compensation.
When executive search fees are based on candidate compensation, the more a candidate is paid, the more a search firm makes. Some contend that is a conflict of interest. Percentage-based executive search pricing provides financial incentive for search firms to negotiate higher salaries of the candidates they place, which is not in the best interest of the client.
- Retained search: 30-33% of total first year cash compensation of the candidate placed, plus expenses
- Contingency Search: 20-25% of first year base salary of the candidate placed
Flat Fee Pricing
A small percentage of search firms charge a flat fee, including Egon Zehnder, one of the leading retained firms in the world. (Full disclosure: Intellerati is the research division of The Good Search, which also offers retained services by flat fee.) Egon Zehnder maintains the pricing model enables the firm to be “completely unbiased” and to “facilitate hiring negotiations with no conflict of interest. Most fixed fees are similar in total amount to the percentage based fees.
While there will always be firms that charge less, and there were always be search engagements that enable a firm to charge more, most executive search fees fall within a basic range, regardless as to how the firm does the math.
Average Full-Service Executive Search Prices
$50,000 – $300,000
Executive Search Pricing:In-House Services
At large corporations, the do-it-yourself executive search model has grown in popularity. Employers using internal executive recruiters and corporate executive search teams to conduct executive search in-house. In doing so, they frequently turn to executive search research firms and vendors offering unbundled executive search services to augment their own efforts. Sometimes, all they want is a list of potential candidates for their own executive recruiters to call. Sometimes, they want interested, qualified candidates that they’ll usher through the interview process through to hire. Sometimes, they want a firm that flexes to serve as an extension of their own team.
Executive Search Research and Unbundled Services
Executive Search Research firms and search firms offering unbundled services typically charge by the hour, by the project/search, or by monthly retainer. Research firms offering name generation services also charge by-the-name. Name-gen research produces lists of target candidate names. Typically, the lists are comprised of information gathered from the Internet and from calling into companies.
The wide range in pricing depends on the services offerred and on domain expertise, access to top talent, consultative abilities, and executive presence of the firm. The budget firms may produce candidates who are simply “willing to take a call”, without qualifying, interviewing and vetting the candidate with a more thorough assessment. They typically do not position offers, assist in negotiations, and close the candidate.
Average By-the-Name Prices:
- $30 to $50 a name
Average By-the-Hour Prices:
- $90 to $150 an hour
Average By-The-Month Prices
- $20,000 – $40,000
Increasingly, in-house recruiting teams are turning firms that offer the expertise of retained search firms services, but a much more flexible model. designed for in-house search teams. Frequently, theses firms work by monthly retainer as a natural extension the in-house executive recruiting team. Unlike the retained model, the monthly retainer gives companies a significant opportunity to save.
In most cases, firms offering unbundled services are not responsible for the hire. Research firms do make it a practice to guarantee the quality of their research.
Risks to Consider
The risk of By-the-Name pricing is paying for names you don’t need. Another weakness is it is a quantitative approach. A name doesn’t tell your who is good. Moreover, a name does not a candidate make. Someone still needs to do the work of recruiting, converting the name into a viable candidate.
The risk of By-the-Hour pricing is that it gives the illusion of comparing apples-to-apples when that is rarely the case. A company with a lower hourly rate may be a terrific bargain or it might cost you more per engagement — either in the total fee for the engagement or in a botched search or missed opportunity. Another risk of By-The-Hour pricing is that the meter is always running. The risk can be mitigated if it is possible to set a flat project fee, so you know what the work will cost. The challenge of setting a project fee is that research firms are not Masters of the Universe that control outcome.
The risk of By-the-Month pricing is that a company could end up paying more for an executive search if, for example, a search is put on hold for a time or if hiring executives are on vacation and available for interviews. However, that risk is mitigated when companies have the option of switching the firm to another search. Also, the monthly model works better when a company can commit to a four or more searches a year. Doing so enables the firm to assign a specific team member to serve the client for concierge-quality service.
The True Cost of Executive Search
Last, price is not the same as the total cost of a search, a figure that is the one that I’ve found is the more accurate measure. It is a figure that also takes other factors into account, such as the cost of a position languishing unfilled, or of a cheaper, but ultimately bad hire. There is a reason that the most powerful and successful employers in the world continue to invest in quality executive search, whether through their own teams or in league with a trusted executive search partner. I’ll address that topic in another post.
Questions for the reader:
What do you pay for executive search? If you have paid different fees, what have you paid and what was the outcome? We welcome your thoughts and comments.