Organizations that work with recruiters and recruiting companies to help fill mission-critical positions have various options available when looking to hire a recruiter to provide these services. However, the three most common remuneration methods are contingency, retainer and engagement fee. There is no right or wrong answer as to which type of working relationship is better – it can depend on a number of factors.
Contingency
A contingency arrangement tends to be more of a client-vendor relationship. A client may have several recruiters that are attempting to fill a position. While a client may assume that having multiple recruiters to find a candidate is advantageous– and it can be – there are definitely some drawbacks.
When recruiters know they are in competition with others for a search, there is a tendency to rush the process. After all, the first “good” candidate presented can become the front runner in a search. Good is in quotes for a reason. When there is serious time competition to present viable candidates to a client, good can become the enemy of great (see Good to Great by Jim Collins).
Some recruiters in a contingency situation may have the attitude: “Well, it’s not a perfect fit, but I might as well submit this candidate to see if he or she gets somebody’s attention.” In this type of scenario, the recruiter may think a candidate is a long shot. Unfortunately, that “long shot” has to be examined and vetted by someone internally at the client’s place of business.
Sometimes the best fit for a position isn’t someone who is immediately available. The recruiter must do some digging and networking to find the ideal candidate. However, knowing that time is of the essence with the competitive nature of contingency working arrangements, there can be a tendency to go with people that are readily available to present to a client. Sometimes these are the right people; sometimes they are not.
Another potential drawback to contingency arrangements is that recruiters usually are reluctant to disclose the companies they are working for as they worry it may attract other recruiters or that a candidate will go directly to the client.
In addition, contingency searches involving more recruiters can be considerably more demanding from a time perspective for a client. There tends to be more people to interview with this approach. If they are the right people, that’s wonderful. Unfortunately, if multiple candidates are presented that miss the mark, the contingency process can take up valuable time that many clients simply do not have available.
Retainer
When a company utilizes a retainer relationship with a recruiter, it is on more of a trusted partner basis. The recruiter is being hired and paid as an outside extension of a client’s internal team. With this type of arrangement, recruiters are constructing a dedicated search and process to find the right candidate. The focus is on quality and appropriateness for the position. The best interests of the client are at the forefront – where they should be.
With a retained search, recruiters are anxious to get the word out about the company that has the position(s) available. They are protected from predatory competition from other recruiters because they usually have an exclusive working relationship with their clients.
Engagement Fee
An engagement fee agreement with a recruiter represents a middle ground. It is part contingency (most of the payment comes at the end) and part retainer (it involves an upfront fee). With this type of arrangement a company pays a recruiter an engagement fee – usually anywhere from $3000 to one-third of the expected overall fee. The recruiter collects the balance upon final job acceptance. This differs from retainer agreements where there are usually set payments throughout the search process based on time periods and/or criteria that are met along the way. Some companies like this method because both parties have “skin in the game” and are motivated for the right reasons.
So which route should you go? It depends. Contingent recruiter relationships might be best in the following circumstances:
- There are many high-quality candidates available.
- The need is less mission-critical and less urgent.
- You have more time to interview and vet candidates that might not seem like the best fit.
Retainer recruiter relationships might be the best for your company if these conditions apply:
- The need is urgent and critical to the company’s mission.
- There are already front-runner candidates in mind, but you want to compare those candidates against other possibilities.
- You are looking for a recruiter who is accountable to you and will provide extensive documentation to recommend a candidate.
- You are willing to pay an expert recruiter for their time and expertise to seek out the best candidates.
Working with a recruiter utilizing an engagement fee can be viable option for the following reasons:
- You like working on a retainer basis, but you are working with a new recruiter that may be untested in your eyes.
- You are not used to working with recruiters on a retainer basis and want to try this method to see if it is more effective for your company.
Every organization must examine its own internal needs to determine the best way to utilize outside recruiting assistance. Hopefully, the above information provides you with a good starting point.
