1. The typical search firm “leverage model” does not serve clients or candidates well.
Most search firms use some version of a “leverage model.” Partners get the business and interact with clients, while junior researchers contact candidates who are then screened by consultants. This model is fundamentally flawed.
Typically, researchers do not attend client briefing sessions and therefore, their knowledge of the organization and its needs depends on the information provided by the partner. If the researcher does not understand the organization and the nature of the business problem, then the probability of developing a solution is remote. Even if the researcher attends the client briefing, he or she frequently lacks the expertise, experience and judgement to really understand the business problem.
In the research process, junior researchers are often unable to engage senior, high-potential candidates, present the opportunity in a compelling manner and, answer even basic candidate questions. In addition, the client’s image within the marketplace can be tarnished by the way in which the search firm represents the client in the field.
2. The search firm’s economic model drives professional fees higher and extends time frames.
Expensive real estate and infrastructure create significant overhead burden for executive search firms. Firms are compelled, by their economics, to generate a revenue stream adequate to cover their fixed costs as well as make a profit, which drives the necessity for both elevated fees and high assignment flows.
Search firm resources are often overextended, which can delay the completion of assignments. Researchers and consultants are often managing six or eight assignments simultaneously, with each project receiving less than one full day’s focus per week.
3. Retainer fees neither balance risk nor contribute to building a true partnership.
Retainer fees force the client to accept all of the financial and performance risk in a search project. It is fundamentally unfair to require the client to pay one-third of professional fees on contracting, and the balance before a hire is made, particularly if a hire is not ultimately made.
The retainer-fee structure does not contribute to building a partnership. A better model reflects the fundamental value behind any partnership, the sharing of risk and rewards.
4. Compensation-based professional fees are unrelated to the complexity of a search assignment, drive fees up and create a conflict of interest.
Basing professional fees on the compensation of the successful candidate does not reflect the complexity or difficulty of the search assignment. In addition, including signing bonuses and other similar payments in the calculation of search fees defies both logic and fairness. Converting fees to an estimated hourly rate results in a charge rate that exceeds that of senior partners in even the most expensive law firms.
Basing professional fees of the search firm on the compensation of the successful candidate creates a potential conflict of interest. Pure economics could foster the promotion of the most expensive candidate, regardless of the availability of comparable or superior candidates at a lower compensation level.