Firms Charge For Assignments
firms work in two distinct ways. Contingency
firms are paid only when their client's position
is filled by a candidate identified by the
recruiter. If another candidate gets the job,
the recruiter gets nothing. Modified retainers
involve a partial payment up-front, followed
by the balance being paid when the candidate
signs the employment or upon the candidate's
start date. Retainer firms, in contrast, are
paid regardless of the outcome of the search.They
may be hired to work on a specific assignment,
or they may be put on a true "retainer"
to work on assignments on a continuing basis,
but in either case they will submit invoices
regardless of their rate of successfully closing
most common approach to fees is to charge
a flat fee per placement. This can range anywhere
from $20,000-40,000. Sometimes recruiting
firms will offer discounts from these fees
in return for a guaranteed volume of assignments.
Flat fees are paid about 80% of the time.
less popular alternative is a percentage of
total compensation. This is usually 30% of
the first years income. By simply doing the
math on any candidate salary and compensation
package, this can be a very costly proposition.
recruiters will work on some other basis,
such as hourly rates for time spent, or even
(with some venture capital backed start-ups)
for equity instead of cash. But the flat fee
model remains the standard approach in the
firms have varying policies concerning when
they submit invoices. One common method is
to bill one-third at the outset, one-third
a month later and the final third a month
after that. Or, the first invoice may be sent
after the first month's work. Or the firm
may use fifths, with a fee due every month
until the full amount is paid or the search
is completed. Sometimes the final slice is
paid only when the position is filled.
retainer arrangements involve the payment
of a flat fee up front to initiate the search
and recruitment activities, 50% of the remaining
fee due when the candidate signs an employment
agreement with the client and the remaining
50% due when the candidate starts work.
all firms bill for the expenses they incur
while working on an assignment. Typically
including telephone and fax charges, travel,
and meals while interviewing candidates, expenses
can range from 5% up to 20% of fees, and even
more for some complex international searches.
Clients should pay close attention to expenses.
In general, clear policies should be agreed
upon up front. The best and most reasonable
policy should be an expense cap from the outset
written into the recruiting agreement that
any additional expenses must be preapproved
in advance and in writing by the Client.
time to time, we hear instances of recruiters
using expenses as a profit center by marking
them up, or double-billing one meal or trip
to two clients. Such abuses are thankfully
rare, since most firms realize that their
biggest asset is their professional reputation.
recommend that clients monitor expenses carefully,
but also bear in mind that being too aggressive
could inhibit recruiters from making sufficiently
thorough efforts on the assignment.
If an Assignment Is Canceled?
depends on when the assignment is canceled
and the reason for cancellation. It is not
unusual for clients to find a candidate on
their own for a position after engaging a
recruiter. In this case, the Client should
notify the firm(s) that they are working with
that the position has been filled. Contingency
firms would not be paid anything.)
clients change the job description substantially
during an assignment so that the recruiter
has, in effect, to begin a new search.
the search fails to produce a candidate that
the client is prepared to hire, or when the
candidates offered the position turn it down,
contingency firms walk away without compensation.
In theory, retainer firms will be paid in
full, since their agreement is independent
of the outcome of the assignment. In practice,
there should be some discussion of why the
search failed. If the recruiter bears some
responsibility, it is not uncommon for the
search firm to receive partial payment only,
or to give the client a credit against future
every newly hired candidate succeeds in his
or her new position. When the candidate is
terminated or resigns for performance-related
reasons within a 90 day period of being hired,
most search firms will agree to find a replacement
for zero or modest fees.
there are a number of ambiguous and potentially
awkward situations that can and do occur regarding
fees. While these problems cannot be predicted
in advance, they can be mitigated if the client
selects recruiters on the basis of building
a close working partnership, not simply to
carry out a hiring transaction.