The silver bullet objection to a retainer fee ?

I never, ever negotiate on the principle of retainer. I can give all arguments why I stick to that principle, and if necessary, repeat myself until my voice is hoarse. 

There are buyers who sincerely do not understand the retainer concept and its advantages. This gives consultants a chance to educate the prospect and convince him about the merits of a retainer. Others throw you the objection like a hot potato, for the fun of finding out how you handle it. In the latter case,  the "winning time" silent stare, or some rehashed mumbo jumbo will be a confirmation to the buyer you're not worth a retainer.

A particular breed of buyers believe they possess the silver bullet of retainer objection. It is presented as a trite piece of wisdom, as unoriginal as it is hackneyed. The first time I heard it was during my second week on the job, while delivering a phone pitch to the HR manager of a multinational window frame plastics firm headquartered in my hometown Roeselare; a small, lively town filled with entrepreneurial people in the west of Belgium. I still remember hearing him spit in the speaker with barely contained pleasure and excitement, firing his silver bullet:

No Cure, No Pay

Which I turned around in an equally trite manner:

No Pay, No Cure

Why do some buyers want "success based" ?

Some buyers consider executive search service as a process relying on a soft, almost new-age, liberal arts sorts of competence that can abundantly found everywhere,  present with anyone possessing a reasonably functioning brain. Their opinion is that a retainer somehow is not deserved, because if anyone can do it, it should  not be that hard. Steer the conversation into an intelligent discussion about value add and see what happens. Not everyone can explain in a concise, clear and proper manner search project ROI, which should be the conclusive step into overcoming the objection. If that does not clear the road to a constructive discussion about retainer fees, you are probably holding up a mirror to someone incapable of grasping business value. Not every prospect should be your client.

Other buyers scale up from recruiting and staffing (secretary, accountant, sales man, driver, office boy, marketing assistant, machine engineer) and assume executive search represents a similar need, to be fulfilled in the same manner. We're just talking about finding someone to fill a position, right? The erroneous belief that the value-add of the executive search process is just "finding and presenting the right CV", rather than delivering a solution in the form of a manager who will realize above average ROI, is still firmly entrenched with the majority of buyers.  The difference is that recruiting on this level does not need the steps required to deliver succesfully a search project. A conversation about value will clear up most of the issues, and could lead to a mutual understanding if need should  be served by executive search service, or by a recruiter working on contingency basis.

The other case is that buyers see a project of placing great managers as somehow risky, risk defined across a broad spectrum of probabilities; and they want to put that risk squarely with the provider. In my unscientific experience, such risk sampling yields popular topics such as "the risk not being able to find what we are looking for", "the risk a candidate they like might chicken out during package negotiations", a risk "loosing the money we pay for the retainer", even the risk "we can change our mind, and not get our money back (...)". A successful project must have buyer buy-in, have him invested in the project, working together with the consultants. A retainer precisely diminishes project risk and surprises because the buyer will opt to be an active participant in the process.

HR buyers are often by far the most conservative buyers, looking at the project with a perspective of what can go wrong; rather than how it will make their internal clients succesful. It might be wise to adapt your pitch accordingly.

In order to be trusted with a retained search service project, the search consultant must also be worth it.  When the above objections leave him with his mouth hanging open, he simply does not deserve an assignment. The companies that try out success based fees for a position that is genuinely critical and sensitive, usually do come back realising the contingency search provider has no clue of the value they want to realise.  The interest of such search firms is not to develop  and apply the knowledge in-house to search for value-add, but to find profiles, and get CV's out as quickly as possible to their client. Just like their client, they want to reduce their risk, time, and opportunity cost.

Similarly, tragedy can strike when consultants are retained on the basis of a single intangible such as personal chemistry. To retain someone without a check of industry know-how, placement experience, commitment and demeanor is playing Russian roulette.

Going to success based fees won't cure that problem.

Retained versus Contingency or "Succes" based Search

A company seeking to recruit through a third party a senior executive is faced with two choices.

The first is to work with a consultant on a retained basis. A retained fee means the consultant is being paid in installments the moment he starts working on the project, with a last amount due upon succesful closure of the assignment. Usually a third is paid upfront to start, another third when the client agrees to meet and interview the presented candidates, and the remainder upon succesful closure.

The second option is succes-based payment and implies the consultant is paid when a candidate actually signs his contract, or when he shows up his first day at work.

The way a search fee is paid determines to a great deal how the search is carried out, and what results can be expected. The way a fee is paid does not necessarily mean that a retained service is more expensive.

Contingency based recruiting can be considered appropriate for roles that are not critical or sensitive, in the US and Western Europe typically for positions earning below 100.000USD or 70000 Euro annually. The success based approach works when numerous vacancies must be filled, time is of prime importance, and there is a freedom to present a candidate to multiple employers. It is therefore an apporach  used for positions where numerous qualified candidates can easily be found. Contingency recruiters are often engaged in a race against time. They are aware they carry a risk and will take on as much as possible assignments as possible, matching CV in their database with the formal jobdescription provided by the client.

Retained search consultancy is required when a particular, usually the best and most qualified available candidate needs to be found. Amongst its specific advantages the following can be listed:

1. At the start of the project the consultant becomes a virtual, temporary employee of his client. Upon paying the retainer, the client becomes a partner and genuine stakeholder in the project together with the consultant. They will provide the consultant with all relevant information in order to facilitate the recruitment process. The consultant will usually have access to the direct hiring manager, peers of the position to be filled, and board members. This will allow him to grap the important cultural or "soft" issues making up the crucial intangible dimension of a candidate. At the beginning of my search career I worked on a VP search project for a Turkish Technology Company, and had access to the whole executive team, including product roadmaps and financials. When the CEO could not decide on which presented candidate to select, I joined a board meeting in order to facilitate the decision making process.

2. The consultant will guarantuee the client a strict off-limits arrangement, he will not recruit anyone from the hiring organization for a year after starting the assignment, and will never contact the placed or hired executive for other opportunities in the future. Furthermore, a warranty arrangement will be provided should executives placed in the firm resign or their contracts be terminated. A replacement at no cost (except out-of-pocket expenses) will then be provided.

3. The consultant and researchers can spend the necessary required time to complete the search process, and they will work on an exclusive and/or dedicated basis. Usually, ad-hoc teams of consultants will work on a particular project, combining - useful outside the US -  both local and practice group know-how. Finding a local CTO for a GSM Operator in Kazakhstan for instance can't be done otherwise. A Russian or Kazakh literate researcher is the minimum requirement to even start considering such assignment.

4. The hiring organization needs a significant degree of discretion and confidentiality. The processes and ethics of the retained firm are geared to ensure as much confidentiality as required. Confidentiality is of prime importance when a search consultant is retained to replace an underperforming manager, and the executive to be replaced is never in the know he will be replaced.

5. Sometimes the hiring organization wants to include internal candidates in the process, and evaluate those against the available talent outside the organization.

6. A client organization wants an independent third party to convince particular individuals to join their firm, and help or advise the hiring organization in the negotiation process. Executive Search firms are the best instruments to discreetly approach particular individuals, and present them the opportunity in an objective manner. Executives approached usually recognize a high degree of professionalism, discretion and sophistication, and feel more comfortable to have a third party advising them.

7. The consultant can assist the hiring organization, upon its request, to develop the offer to the candidate he will be most likely to accept.

8. The consultant will, before the candidate signs the offer, conduct a comprehensive 360 degree reference check on a candidate. The offer will be contingent upon review of the reference check by the hiring organization.

Before any search assignment is carried out, a retained search firm will submit a written and comprehensive proposal providing:

• An outline of the business context, i.e. industry, sector and company as understood by the consultant.
• Based on the discussions and interviews with the management of the hiring organization, a detailed in-depth summary of the deliverables of the role, including an understanding of the position profile and responsibilities.
• Details on the actual search strategy to be implemented. This section will elaborate on which likely employers of potential candidates will be targeted, including the geography covered.
• An outline of the Search methodology applied.
• A clear description of the timing of the process, and the amount of candidates to be presented.
• An explanation and description of the fee structure, including all terms and conditions; including all "out-of-pocket" expenses which cover travel expenses related to interviews, and specific psychological tests if required.

A different, but limited search process called Management Selection and is often offered through either a contingency or a retained arrangement. The key difference with executive search is the fact that people from such selection firms will ask the hiring organization for a fee covering an advertisement in the job section of a major newspaper (or limit themselves to CV's in their database). They will collect all CV's send in response to the ad., and proceed with recruiting the best available candidate from the CV's received. However, this does not constitute executive search, because all "found" candidates are on the market looking for new employment, a population that in normal times at best will make up 5-10% of the available candidate universe. However, the fee for selection won't be invoiced at the same ratio to direct and active search.

An anecdote illustrating why to apply the above

I worked 2 years ago on a project whereby a Middle Eastern client negotiated the retainer for a Pan-European Sales Director position aggressively down. This company always recruited on success base and was considering for the first time, after a period of significant growth, to use retained search, as long as the retainer would be "reasonable".

The client represented a strategic opportunity for us geographically, he was active in an interesting technology sector, and we exceptionally agreed to a (much) lower than usual retainer. After an intensive search process spanning 6 months, we learned that the formulation of the contract was a major issue for the 2 most qualified candidates. The first candidate refused to consider the contract terms, taking especially issue with the communication style of the client. The other candidate similarly rejected the contract terms (rightly so). The hiring organization asked us "to provide them some more good CV's", and complained about us presenting candidates unwilling to join the company on their terms.

The hiring organization did not share with us the information related to the contractual terms when they agreed on our proposal, indicating instead flexibility according to the seniority of the presented profile. Furthermore, despite their initial agreement on a profile that had multinational corporate experience OR international account management experience, they chose to interprete the OR as AND,  a small  difference with  big implications:  the candidate profile changes dramatically with one single word, because those professionals earn a package significantly higher than what was proposed by the client.

In discussions with senior executives one year later, the hiring organization realized, that the time spend and sales revenue lost was not worth their inflexibility, and asked us to renew the search process, on new terms. A retainer does no mean a search consultant can do magic, we can't create people, especially when after a shortlist presentation the client starts wishing and pushing for higher qualified executives.

Lesson learned: do not be over-flexible when it comes to retainers, especially in Emerging Markets. If a company cannot, or is not willing to understand the advantages of retained search, they are neither the right partner for the Search firm working on retainer. Avoiding that mismatch will save both parties unnecessary pain and time.