April 2010

Choosing the Best Recruitment Process

By Mitch Vigeveno

As a business owner, when you decide to hire professional talent you have several options.  You can manage the process yourself, using advertising, the Internet, and networking/referrals to identify potential candidates. Or you can use a professional recruiting or executive search firm. These firms generally come in two flavors: contingency recruiters and retained executive search consultants.  By understanding the differences between retained executive search and contingency recruiting you can make a more informed decision as to the most appropriate resource to use in filling your key positions. 

Choice of Internal or External Resource

Using the first option above, the individual responsible for hiring decisions makes an effort to find qualified applicants himself/herself or through staff. This is usually done by advertising the position in the print media or on the Internet, or by networking with other industry contacts. Interested candidates are screened, interviewed by phone or in person, perhaps tested and then a hiring decision is made.  You and your firm retain full control of the process.

The disadvantages of advertising and postings are that many highly qualified candidates, the so-called “passive candidates” who are not actively looking for another job, may not see or respond to an ad or post their resumes on the Internet. You are actually seeing less than half of the potential candidates. Additionally, many unqualified candidates must be screened in order to discover those who are, in fact, qualified; and, once qualified candidates have been identified, complex, time-consuming, and sensitive issues of negotiation and reference-checking are faced without the benefit of an impartial third party.

These are a few reasons why many organizations, particularly small-to medium-sized firms, prefer to use outside recruiting professionals. Using a third-party firm saves time, provides professional input, and enables you, as a principal in the company, to do what you do best – open new relationships and meet with your existing clients. 

Contingency or Retained Search Defined

 How do you decide whether to use a contingency recruiter or a retained executive search consultant? On the surface, it appears to simply be an issue of how the recruiter gets paid.  A contingency recruiter earns a fee only when the organization hires someone.  A retained search consultant, on the other hand, is paid in advance to conduct a search that usually results in a hiring.

What really needs to be understood, however, is that the way the fee is paid has a great deal to do with how the work is accomplished, and, in turn, what kind of result can be expected.  When a company retains an executive search firm to fill a particular job, it is paying for the process of conducting a search.  Without being paid in advance, a contingency recruiter has no assurance of being paid at all.  Therefore, a contingency recruiter cannot afford to invest a great deal of time working on any particular engagement, because a successful outcome often depends on factors beyond the recruiter’s control.  Contingency recruiters typically work with a large number of job openings and, using a database of known candidates, look for matches on paper. They then interview the candidates for the particular position in question. If they appear to be qualified, they then send those candidates’ resumes – often as many as possible – to clients for possible interviews.

As such, the contingency search process is geared to identifying qualified candidates, but not necessarily the most qualified candidates that could be found if significant research and interviewing were to be applied to the hiring organization’s particular need.

Contingency recruiting is generally most appropriate when:

• The total compensation of the position is less than $100,000
• Many people are likely to be qualified for the position
• Multiple vacancies with the same job description are being filled
• The hiring organization wants to take more responsibility for screening, interviewing, and negotiating with candidates

Retained executive search consulting is generally most appropriate when:

• The position being filled is a mission-critical position that is key to the success of the company
• The total compensation of the position is above $100,000
• It is critical to hire not just any qualified person, but the most qualified person available

In the process of a retained search, the hiring organization will also receive:

·      A consultant who will make a dedicated effort on its behalf to filling the position, and who will take into account nuances of the hiring organization’s culture and other critical issues related to the job vacancy

·      An independent third party to thoroughly screen candidates, through in-person interviews, reference checking, and often testing, before finalists are presented

·        

EvEEvaluation of internal candidates against an external shortlist

·       A go-between to help persuade a candidate to leave a desirable position for a better opportunity, and to help negotiate the terms of the move

·       A high degree of confidentiality in the recruitment process

Differences in Approach

There are several key differences between retained and contingency recruiting in the way the process is carried out.  A retained consultant works exclusively on the search and is expected to evaluate all candidates being considered for the position.  As a result, a retained consultant will never present the same candidate to more than one client at a time.  A contingency recruiter usually does not have an exclusive assignment but, instead, is in a race against other sources to present a winning candidate, and often presents attractive candidates to as many clients as possible.

Contingency recruiters tend to be more specialized by industry and function.  Retained search consultants may also specialize but, because they are driven by original research for each engagement, are willing and able to apply that process across industries and functions – especially when circumstances indicate the possibility of recruiting from outside the client’s industry.

Just as the two kinds of service differ in their approach, their fees also differ.  Retained search firms typically receive 25-35% of the first-year cash compensation for the hired candidate.  They make an estimate of the fee and bill for a portion of the fee to initiate the engagement, with several subsequent invoices leading to a final bill that makes an adjustment based on the actual compensation package awarded to the hired candidate.  As an alternative, most retained consultants will also negotiate and accept a fixed fee, based on the expected compensation level, and billed in three or four installments during the search.  Contingency recruiters, on the other hand, typically receive 15-30% of first-year cash compensation, paid in one lump sum on hiring.

In addition to the fee, retained consultants ask clients to reimburse them for travel expenses incurred for candidate interviews.  Contingency recruiters, typically, do not incur these expenses.

Neither contingency nor retained executive search consultants accept fees from individuals for the purpose of helping them find a job.  However, contingency firms are motivated to “market” highly attractive candidates to several potential employers at once because that increases their chances of making a placement. Good for the recruiter; not good for the client. Retained consultants are not motivated to sell candidates in the same way; they are being paid for the process of selecting the best candidate, so they can be more objective about whether a particular individual is the right choice.

Search Process

The contingency recruiting process is quite simple.  Recruiters learn the facts about the job vacancy and the company involved, scan known candidates, conduct phone interviews, and submit their resumes as quickly as possible. 

The retained search process has many more steps.  If a firm decides to hire a retained executive search firm, here is what they can expect:

·         The consultant will conduct detailed interviews with the client to develop a full understanding of the position to be filled and the qualifications of the executive to be recruited.

·         A summary of this understanding, including a detailed profile of the qualifications and experience of the desired candidate, will be communicated to the hiring executive at the outset of the engagement.

·         This engagement letter will also include a complete description of how the search will be conducted and will outline the firm’s policies on fees, expenses, guarantees, and assurances against recruiting executives away from the client organization in the future.

·         The consultant will conduct original research, targeting organizations identified as likely employers of potential candidates, and accessing proprietary and commercially available databases for sources of potential candidates.

·         Through this research, the consultant develops a “long list” of potentially qualified candidates; he or she then conducts telephone interviews to develop candidates for possible in-person interviews.

·         During in-person interviews (if requested by the client), the consultant conducts a thorough evaluation of each candidate’s suitability for, and interest in, the position.

·         The consultant ultimately presents a “slate” of 3-5 highly qualified candidates to the client. Throughout this process the consultant acts to assure that all issues relevant to filling the position are being addressed.

·         Once the client has selected one or more candidates it would like to hire, the consultant conducts final reference checks to confirm the accuracy of judgments about the candidate’s suitability and to assure that all relevant information about the candidate has been gathered.

·         The consultant will help the client develop the job offer and will help the candidate prepare to accept it.

·         After the hiring, the consultant will stay in touch with both the client and the successful candidate to ensure an orderly transition.

·         Finally, the hiring organization can expect two assurances from the search firm or consultant:  First, they will pledge that, during a given period of time, if the hired candidate does not work out for reasons the search consultant should have foreseen, the firm/consultant will repeat the search at no extra charge (travel expenses only); second, the search firm will pledge not to recruit from the hiring organization for a stated period of time following the engagement.

Each type of firm and process does fulfill a need. Your job as a hiring manager is to decide which one is most appropriate for you, your firm, and the position in question.