Retained or Contingency?

So you're in the market for a new accountant, or sales representative, or maybe an engineer, or an operations manager.  You're busy with not only your own job, but you're also doing the job of the person you need to hire, so you certainly don't have time to go through the laborious, time-consuming task of vetting candidates, examining countless resumes, and setting up interviews.  For every 50 resumes you review, you will be very lucky to get one or two that actually represent what you are seeking...and you can't be sure that the ones that look good are actually representative of the person behind the document.

Putting an ad in a trade journal or on a job board is rarely productive, and here's why.  Even when you specify the skills, experience, and education that the applicant must have, there will still be countless individuals who apply anyway when they are not even close to being qualified.  Why?  Because they have nothing to lose, but you certainly do...the time it takes to read and discard an unqualified candidate.

So, you consider using a professional, independent recruiter.  Your time is certainly more valuable when you spend it running your business instead of playing headhunter.  But there are two main types of independent recruiters...contingency and retained.  Which one makes sense for your needs?

I've been in the recruiting industry for 15 years and have practiced both ways.  The reason is that some searches make more sense one way than the other...but which ones are which?  In my years of experience, I have come up with my own theory of which types of searches are best for contingency and which are best for retained searches.

First, let's explain the different types.  Contingency recruiters work on the basis of taking all the risk and expenses in launching the search.  You pay nothing up front for them to get started.  Generally, they are looking for searches that offer a high possibility of a quick resolution and a quick return on the investment of time and money.  If they find the person you hire, you pay them a fee that is generally based on the first year's compensation to the candidate selected, usually around 25% to 30%.  This may sound like a lot of money, but remember...they are being compensated not only for their work, but also for the risk they assume.  There is no guarantee of a payoff of any kind.  You may think it makes sense to get several recruiters working for you in this manner, assuming that each of them is working hard on the search.  The reality, however, is much different.  Knowing that the search is contingency, recruiters assume that others are working on it as well, so it's really rare that this search is a top priority to any of them, and most of them are not working on it at all.  They realize that no matter how much time and money they put into it, someone else may find the right candidate first and make their efforts and expenses incurred completely wasted.  One big complaint that contingency recruiters have is that their clients are slow to return phone calls and/or emails.  Why should they?  They have nothing invested...no "skin in the game, " so to speak.  In the real estate industry, it is common practice that an interested buy has to put up "earnest" money" in order to take the buying process to the next step, and if they are not willing to put up the deposit, they are not really serious clients.  In my experience, the same can be said for recruiting clients.  If they balk at a retainer fee, they are not really committed to the search.  Clients often change their minds or hire someone without notifying the recruits who are working on the search, which makes the experience even more difficult for the recruiter.  Some recruiters will not even consider contingency searches for these reasons. Generally, they are best for positions that do not require a specific "culture fit' and/or personality type, where you need a warm body who can do a task repeatedly without critical interaction with others.   My experiences has been that most of these positions are below $80K in annual compensation.

If you want to hire a key performer for your business, retained search is generally your most effective option, not only in the quality of the candidate you will get, but also in cost.  A retained search means that you are saying to the recruiter that you are committed to paying a fee to find the best person for the job, and that you are agreeing to pay some of that fee to initiate the search.  The size of the initial retainer can vary from recruiter to recruiter, but the whole idea is to ensure that both parties to the search are committed to it.  The client is committed because an initial cash deposit is involved, and the recruiter is committed because he or she wants to collect the balance of the fee by finding the right person. It has been my experience that retained searches most often produce higher quality candidates.  The reason is that contingency recruiters generally try to pick the "low hanging fruit," which means the greatest number of candidates who generally fit the profile and are available to the recruiter without having to spend a lot of time or money to find those candidates.  When you choose from one of these candidates, you may be the best of that group, but you probably are not getting as good a candidate as you would get from a recruiter who is searching at a higher level.

With a retained search, you will generally get faster results and higher quality.  There is a place for both types of searches, the best "bang for the buck" will usually be found with a retained search.

Why Use a Recruiter?

There are several good reasons to use a professional, experienced recruiter to fill your key personnel needs in your organization.  Not every position you need to fill can justify using a recruiter, but the key positions you need to fill are worth your time and effort to find and use a recruiter that you can count on to bring you not only skilled, experienced, and qualified candidates, but also those candidates who will be a good fit in your organization.  Here are some factors for you to consider when you have some key positions to fill:

1.  Finding good candidates is incredibly time-consuming.  Do you have the time that you can take away from running your business and doing you own job to spend hours looking at résumés?  What many hiring managers do not realize is that it takes just as much time to look at a bad résumé as it does to look at a good one.  On average, I will look at 30 - 40 résumés to find one candidate that I want to contact to discuss the job.  Of those I contact, usually one out of five is worth sending to the employer.  As you can see, that's a lot of résumés to review.  

Part of the problem is that if you post the job on job boards or in trade journals, even if you are very clear about the qualifications that a candidate must have to be considered for the job, you will get seven or eight unqualified applicants for every applicant that actually meets your minimum standards.  It takes a lot of time to separate the résumés worth consideration from those that are simply time-wasters.

2.  The longer you go with the position vacant, the more it costs you in inefficiencies and opportunity costs.  When you are doing not only your own job, but also the job of the person you need to hire, it's doubtful that you are doing either of them very well.  The inefficiencies and opportunity costs you incur are real costs, even if they do not have a line item on your financial statements.

Recruiters have every incentive to find great candidates for you as fast as possible, but they also realize that they are judged based on the quality of the people they bring to your attention.  The best recruiters work fast, but they do not sacrifice quality in the process.

3.  Finding great candidates is a skill that takes time to develop.  If you are not doing it full-time, every day, you are not going to be as efficient or as effective at it as someone who does nothing but that all day.  The best recruiters can generally see the red flags that others might overlook.  Because we are in a strong buyer's market today, many candidates are taking extreme liberties, exaggerating, and outright lying about their skills, experience, and education.  The best recruiter know when something does not smell right, and they can spot the pretenders early in the process.

Conclusion: Not every recruiter works in every area.  The best ones will tell you what they do very well and what they do not do at all.  When you have a key position to fill, a recruiter who has your best interests at heart will tell you if he/she is the person you should use, and if they are not, they can guide you to someone who can fill that need for you.