Communiqué Summer 2003

Recruiting a Recruiter

By: Scott B. Smith

It’s a crisis situation for your health system. Reimbursement is shrinking, the nursing shortage has forced you to increase your use of higher cost agency staff, the LPN union contract is about to expire, and your Chief Human Resources officer just announced his intention to retire in six weeks. There is no one inside to promote, and the market for high-caliber human resources executives, with the experience you require, is somewhat limited. Yet you want to be an employer of choice in your market, and attracting and retaining first-class executives is the best way to give your organization a competitive edge.

So how do you find the right people to fill critical openings in your organization?

The obvious answer is to turn to an executive search firm to recruit a qualified outside candidate.

But with more than 15,000 such firms vying for your business, how can you make an informed – and more importantly, critical – decision as to which firm to hire, especially when your choice today will have such a momentous impact on the future of your organization tomorrow?

Knowledge, as they say, is power. So before starting your search for a search firm, it’s important to understand the two specific categories of executive search procedures: retained and contingency.

The Retained Firm

What It Is

A retained executive search firm functions in the role of a consultant to its client organization, systematically recruiting and evaluating a hand-selected list of potential candidates, most of whom are not currently seeking new employment opportunities. The Retained Search Consultant works in partnership with the client as an extension of the client’s own team.

The goal of the retained search firm is to establish a personal, one-on-one relationship with its client, focusing on client satisfaction and assuring the “right fit” between the client and the newly-hired executive. Therefore, the Retained Consultant conducts fresh, targeted research to locate high-caliber candidates whose backgrounds and experience mesh with the needs of the client organization.

In addition, retained search firms often act as agents between the client and the new executive during compensation negotiations and “breaking in” periods.

Procedure

Vital to the retained search is the initial meeting with the client organization’s officials and other key personnel in order to thoroughly understand the company’s needs, direction and corporate culture. At this time, the Retained Consultant draws up a position description which details the specific qualifications of the ideal candidate, the scope of his or her responsibilities, and any other essential criteria.

After scrutinizing proprietary databases, fresh research, and other industry sources, the Retained Consultant next narrows down a select target list of ideal candidates, who are then pre-screened by telephone. A face-to-face interview follows, after which the candidate’s references and background are rigorously checked.

From this targeted list the client now selects individuals to interview at the client location. The Retained Consultant assists in scheduling these interviews and acts as an advisor in the final selection process, as well as negotiating an offer of employment to the selected candidate.

Billing

Industry standards dictate a fee for the retained search firm that is generally one-third of the successful candidate’s first year’s annual salary. This fee is normally billed over the course of the search assignment, with a retainer of one-third of the total at the outset of the search. Expenses, such as research, telephone, and travel, are billed separately.

The Contingency Firm

What It Is

The contingency search firm does not usually work with its clients on an exclusive basis. Since most contingency firms are actively vying with competing search firms to provide appropriate candidates, they work quickly to submit to their clients numerous resumes of as many candidates as possible. Their first client is sometimes the candidate and not the employer.

Since contingency firms focus primarily on candidates actively seeking new employment, many employers will contract with several contingency firms simultaneously in order to increase the number of potential candidates.

Unless a candidate is successfully placed, the Contingency Recruiter does not collect a fee. Therefore the search phase lasts only until a suitable selection of prospective candidates can be found.

Procedure

The contingency firm rarely meets directly with the employer. Instead, the Contingency Recruiter takes notes from telephone conversations in order to develop a general outline of the unfilled position. Sometimes their information about the position is derived from print advertisements or electronic postings. Once the candidate qualifications have been determined, the recruiter will search through his/her files for resumes of individuals who may fit the position. These documents are then sent to the employer.

Because the employer does not pay incurred expenses, the Contingency Recruiter does not personally interview the candidate. If the employer has an interest in a particular candidate, the recruiter will schedule an interview in person or by telephone.

Reference checking, travel scheduling, and salary negotiations are the responsibility of the employer.

Billing

Contingency firms receive payment only if the candidate is hired. Normal fees range from 20-35% of the successful candidate’s first year’s guaranteed compensation.

Advantages and Disadvantages

So which type of search firm should you hire?

The best approach is to consider the advantages and disadvantages of each.

Retained Firm Advantages:

Higher Level of Service —a one-on-one partnership with the client guarantees a hands-on, personal understanding of the client’s needs, direction, and corporate culture. The Retained Consultant works as a member of the client’s team.
Targeted Recruiting —retained firms actively recruit successful executives who, while not currently seeking an employment change, may still be available for new opportunities. Sometimes the best candidates are not looking for a new job.

Precision Search— the limited number of search assignments undertaken at any one time guarantees the recruitment of high-caliber candidates.
Evaluation --the Retained Consultant meets all candidates face-to-face, thereby assuring the client of appropriate appearance, interpersonal skills, and personality for a “right fit”.
Qualified Candidates —only those candidates who meet specific requirements for education, experience, background, and current employment are presented to the client.
Less Risk —the retained search firm is the only firm recruiting for a particular position. Education, background, and references are rigorously checked.
Ongoing Communication —during the search process the Retained Consultant makes frequent progress reports to the client organization.
Confidentiality— the identities of client and candidates are kept in strict confidence until the appropriate time.
Guarantee —the retained search firm guarantees all searches (usually from one to two years).

Retained Firm Disadvantages:

Fee Structure —the client pays partial or full fees prior to hiring the successful candidate.
Additional Expenses —research, telephone, and travel expenses are billed to the client organization. Outsourcing this to the Retained Consultant can also be an advantage in that candidates are usually reimbursed for their travel expenses more quickly by the search firm.

Contingency Firm Advantages:

Candidate Availability —contingency firms rely on previously-contacted individuals or unsolicited resumes and so may be able to present a list of candidates more readily.
Candidate Contact —by taking advantage of multiple contingency firms, the client is able to quickly broadcast available positions to a greater number of individuals .
Fee Structure —the client pays no fees or expenses prior to the hiring of the successful candidate.

Contingency Firm Disadvantages:

Poorly-Qualified Candidates —candidates with inappropriate education, experience, background, and personalities may be presented. The Contingency Recruiter does not personally interview the candidate .
Lack of Service— the contingency firm might not have the time or expertise to evaluate dozens of resumes. Therefore the client is presented with a “laundry list” of unscreened potential candidates.
No Effort —the Contingency Recruiter may not focus his/her efforts to locate the ideal candidate. Instead, he/she may “force fit” a hire in order to collect a fee. A quick replacement can often be extremely costly to the hiring company.
Lack of Commitment —since fees are not paid until a candidate is hired, the contingency firm is under no obligation to complete the assignment and may abandon the search if a more profitable opportunity presents itself.

Additional Expenses —background and reference checks, travel scheduling, and salary negotiations are the responsibility of the client organization.

Crisis Management

Ultimately, working with a search firm can be an exceptionally beneficial solution to solving the succession planning and recruiting challenges of your organization. By assessing the methodologies as well as the pros and cons of these two types of search firms, you can determine which best suits your specific needs and goals.

So when that crisis hits, all you have to do is pick up the phone.

53 W. Jackson Boulevard, Suite 1526
Chicago, Illinois 60604
312.987.4505 Fax 312.386.1557
toll free 866.987.4505