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Explaining Executive Search Fees

“What are your fees and what is your guarantee?”
It’s a question often asked of an executive search firm.
The answer depends on the complexity of the search.
Consider these factors:

  • Are there only a handful of people capable of performing the duties and responsibilities of the job?
  • What is the level of the position?
  • What is the effort that will be needed to identify/screen and evaluate potential candidates?
  • What is the environment of the company doing the hiring? Is it conducive to attracting top candidates?
  • Finally, is the compensation package being offered sufficient to entice passive candidates to explore the opportunity?

There are ranges that exist in the market place for fees and guarantee periods.

Range of fees:

  • Search firms typically charge a percentage of the first years expected annual compensation.
  • First year annual compensation might be base pay plus expected bonus, or solely base pay.
  • The percentage may range from a low of 22.5% to a max of 33%.

How are fees paid?

  • Typically all executive search firms require a retainer paid up front. This retainer is non-refundable and is earned by the search firm at the time an engagement letter/contract is signed.
  • This upfront retainer can range from 1/5 to 1/3 of the expectant fee.
    • Example: If the expectant first year compensation is 150K, and the agreed upon percentage is 30%, then the total expectant fee is 45K. In this case, the upfront retainer may range between 9K and 15K.
  • Firms that charge 1/3 of the expectant fee as an upfront retainer typically require two additional 1/3 payments.  The second would be due and payable at the time the executive search firm presents their “short list” of candidates and the client agrees to interview them.  The final 1/3 payment is typically due and payable on one of the following events:
    • An offer is made to a candidate.
    • The offer is accepted by the candidate.
    • The day the candidate starts work.
  • Other firms may have different formulas/timelines for the additional payments. A few will not require payment until the successful candidate starts work.

Guarantee Period:

  • Executive search firms typically guarantee their work for a period of 6 months to a year.
  • The key to setting this timeframe depends on how long it will take a company to evaluate the new employee to determine whether he/she is  a good “match”. The Executive Search Firm should stay involved after the hiring to help with the communication and feedback from both the new hire’s point of view and the company’s point of view.
  • This guarantee usually does not involve a refund of fees, but a guarantee to find another acceptable candidate for no additional cost.
  • This guarantee assumes that the company did not make any major decisions/changes that directly affect the ability for the candidate to perform. Such changes may include:
    • Elimination of the position.
    • Reduction in new hire’s compensation.
    • Reassignment of duties and responsibilities from original specifications.
    • Significant unanticipated reduction in staff levels under the new hire’s control.