Episode 24 – Retained vs. Contingency Recruiting

Retained vs. Contingency Recruiting

Abby: Welcome to “The Animal Health Employment Insider,” brought to you by The VET Recruiter. In this podcast, Animal Health Industry search consultant and Veterinary Recruiter, Stacy Pursell, founder and CEO of The VET Recruiter, provides insight and practical advice for both companies and job seekers. The VET Recruiter’s mission is to help Animal Health and Veterinary organizations acquire top talent, while helping Animal Health and Veterinary professionals attain career-enhancing opportunities that increase their quality of life.

In today’s podcast, we’ll be talking about the differences between a retained search assignment and a contingency search assignment.

Stacy: Hello, I’m glad to be here today.

Abby: Stacy, as we’ve mentioned on many occasions before, you’ve worked as a search consultant for more than 20 years, correct?

Stacy: That’s right.

Abby: During that time, you’ve seen and done quite a bit as a recruiter. Have you worked both retained searches and contingency searches for clients?

Stacy: Yes, I have.

Abby: Can you talk about each one briefly and describe what’s involved?

Stacy: Absolutely, and I’d like to start with the contingency search first. Now as we’ve discussed, the two main reasons that organizations use recruiters is for talent and confidentiality. But the way in which they work with recruiters can differ, and this includes their agreement with a search consultant. This agreement involves the way in which the relationship between the two of them works.

In both the contingency model and the retainer model, the recruiting and hiring process actually works pretty much the same. The company has an open position, so it hires a search consultant to help fill it. The search consultant identifies, recruits, and presents the top candidates in the marketplace. Then those candidates enter the company’s hiring process, and eventually the organization hires one of them to fill the position.

Abby: So if the process is pretty much the same, what’s the difference between the two relationships?

Stacy: The difference is how and when the recruiter is paid. In the contingency recruiting model, the recruiter is paid money only after the company or client has hired a candidate that the recruiter presented. This is where the word “contingency” comes from. The recruiter’s payment is contingent upon them finding a suitable candidate for their client. In other words, the recruiter’s payment depends on them finding a suitable candidate. If they don’t find a suitable candidate or a candidate that their client eventually hires, then they don’t get paid.

Abby: They don’t get paid at all?

Stacy: That’s right. They don’t get paid at all.

Abby: So a recruiter could work on a search assignment for weeks or even months, and if their client doesn’t hire one of the candidates that they present, then they won’t get paid at all?

Stacy: Correct, they won’t get paid.

Abby: It sounds as if the contingency model can be very motivating to a recruiter.

Stacy: It certainly is. However, it also forces a recruiter to be careful about which search assignments they accept and which ones they do not.

Abby: What do you mean?

Stacy: Well, a recruiter wants to work a contingency search assignment that they believe they have a good chance of filling. That’s because they know they won’t get paid unless they fill it. It helps, of course, if the search assignment is an exclusive one, but that’s not always the case. A contingency recruiter has to be strategic and selective when accepting search assignments. Now if it’s a long-time client, one that the recruiter has worked with for years, then they’re more likely to accept the assignment.

Abby: So there are two types of contingency searches? Exclusive and non-exclusive?

Stacy: That’s correct. We explored the differences between exclusive and non-exclusive searches in another one of our podcasts. I encourage everybody in the audience to listen to that podcast, as well. There’s not enough time to address all of the points here during this discussion.

Abby: So what happens with a retainer? How is the recruiter paid in a situation like that one?

Stacy: That situation is much different. With a retainer, the recruiter is actually paid in advance.

Abby: In advance? I imagine with that kind of payment structure, the position being filled is viewed much differently by the company.

Stacy: That’s right. First of all, when a company puts a recruiter on retainer, that means the search assignment they’re giving to the recruiter is an exclusive one. No other search consultant or recruiting firm is working on the assignment.

Second, when a company issues a retainer to a recruiting firm, it means that the company is very serious about filling the position. Typically, this is an important, high-level position, and the organization is putting an emphasis on not just filling it, but filling it with a superb candidate. Company officials are paying a recruiter that they trust to put a considerable amount of time and effort into the search to source the best candidates. And in this case, they’re “putting their money where their mouth is.” They’re paying the recruiter up front for their services.

Abby: Does a retainer situation always end with the recruiter placing a candidate at the organization?

Stacy: In the vast majority of cases, that’s exactly what happens. However, in a small percentage of cases, the recruiter is not able to present a candidate that the organization wants to hire.

Abby: What happens in those cases?

Stacy: As we’ll discuss shortly, the recruiter is not obligated to pay back the engagement fee, although that is up to them. Depending upon the relationship that they have with their client, that money could be put toward a future search.

Abby: Does the recruiter receive ALL of the money tied to the fee in advance of the search?

Stacy: No, that is not usually the case. Just like there are two types of contingency search assignments, there are two types of retained searches. The differences don’t have anything to do with exclusive vs. non-exclusive, though. That’s because typically all retainer searches are exclusive. The differences deal with how and when the recruiter receives payment.

Abby: What are those differences?

Stacy: The first type of retainer search assignment has what is called an engagement fee. This is sort of like a blending of contingency and retainer. This type of search is also sometimes known as a “container” assignment. The name itself borrows from both “contingency” and “retainer.” Sometimes it is called a hybrid-retained assignment.

First of all, as we’ve discussed, the search assignment is an exclusive one. Second, the recruiter receives a portion of the anticipated search fee up front. It’s not most or even half of the fee. It’s in the neighborhood of a quarter to a third. What’s important to understand about the fee, though, is that it’s non-refundable.

Abby: Does that mean if the recruiter does not place a candidate at the client to fill the position, they don’t have to give the engagement fee back?

Stacy: That’s right. The company is paying the recruiter to move other things aside and to make their search a higher level of priority so they are paying the recruiter for a priority search.

Abby: I’m guessing that if the company is willing to pay a non-refundable engagement fee, then they’re serious about filling the position.

Stacy: They are. And not only are they serious about filling it, but they want to fill it sooner rather than later. When a company pays an engagement fee, they usually want to find a suitable candidate and bring them on board as quickly as possible. In a situation like this, time is of the essence. That’s why the company is willing to invest money up front, before the search has even started.

Abby: So when the recruiter finds a candidate that the company hires, then the recruiter receives the remainder of the fee? They receive the engagement fee up front and the rest after a candidate has been hired?

Stacy: That’s right. If the recruiter received a third of the anticipated fee up front, then they’ll receive the rest once the placement has been made.

Abby: You said there are two types of retainer search assignments. What does the second type involve?

Stacy: The second type is the traditional retainer or the full retained search. With this type of agreement, the recruiter typically receives their fee in three installments. In this case, the initial retainer is like the engagement fee that we just discussed. It’s one third of the overall fee.

However, with a traditional retainer agreement, the recruiter does not have to wait until a candidate is placed to receive the rest of the fee. The timing of the next two installments is agreed upon by both the recruiter and their client.

For example, the second installment could be paid when the company has whittled down the candidate pool to a short list of three or when they began face to face interviews. In that situation, company officials know they’re going to hire one of the recruiter’s candidates; it’s just a matter of which one. So at that point, the recruiter would be paid the second retainer, or installment.

The third installment could be paid once the company’s top candidate of choice accepts an offer of employment or perhaps after their first day of work. At that point, considering the nature of the search and the relationship that the company has with the recruiter, the organization is not going to wait very long to pay the remaining third. Payment terms for a retained search are much different than they are for a contingency search, especially if that contingency search is non-exclusive.

Abby: Stacy, in your estimation, which of these types of search assignments is best?

Stacy: I’d have to say that it depends upon a couple of factors. First, it depends on the positon being filled and the circumstances surrounding it. If you have a high-level, critical search that the organization wants to fill quickly in a confidential fashion, then an exclusive retained search is probably the best option. However, if you have a lower-level, less critical position that is not tied to a strong sense of urgency, then a non-exclusive contingency search will do just fine.

Abby: What’s another factor involved?

Stacy: Another factor is the preference of the recruiter and the way they like to work. Some recruiters enjoy working on a contingency search more than they enjoy working on retainer. In contrast, there are some recruiters who only work on a retained basis will never touch a contingency search.

Abby: It seems as though there would be some stress associated with both types of searches.

Stacy: That’s very true, but once again, it can depend upon what the recruiter prefers. Some prefer the stress of not getting paid until they’ve produced the right candidate, and some prefer the stress of being paid up front before they’ve even presented a candidate. Recruiting is like any other profession. It can be stressful, especially in terms of getting paid. When it comes to contingency, container, or retainer, it can come down to what the recruiter wants as much as the type of search being conducted.

Abby: Stacy, which type of search do you prefer?
Stacy: In our search practice we have chosen to not be “one size fit’s all”. Instead, since we are a boutique search firm, we prefer to consult with the client upfront. We discuss the various options with the client and then weigh the pros and cons of each type of search. We then make recommendations to the client and work together to determine what is going to be the best for the client. Then ultimately we let the client decide and go from there. The bottom line is that we handle retained searches, contingency searches and fill searches with our hybrid model. We have some clients that sign all three agreements and then make a determination on a case by case basis each time we start a new search. If it is a high level executive role they are likely to do a full retained search. If it is a field sales position that they have more time to fill, then they might choose to do a contingency search in that instance. We prefer to give our client options like I said instead of being a “one size fit’s all” since each client has unique needs.

Abby: Stacy, thanks so much for all of this great information today.

Stacy: Thank you, Abby. I look forward to our next podcast!