Retained, contingency, hourly – with so many different recruiting models circulating the business world, many professionals struggle to comprehend the unique differences each type of firm provides. Each model purports to be the most efficient and cost-effective, but there are distinct advantages that vary between firms when assessing what the organization needs to streamline their talent strategy.
In order to truly understand the types of recruiting models, consider the basic concepts behind each.
One of the most distinct characteristics of a contingent firm is the idea that a client only has to pay if there is a hire. At first glance, this seems to be quite the deal; however, the cost is generally 30% of the employee’s first year income, so the success of the project is quite expensive and does not come with a guarantee of quality.
As the search consultant’s source of income depends directly on turning around a quick hire, such firms can be hasty to make the placement, causing them to work swiftly and carelessly without assessing the true needs of the candidate and client.
Additionally, with a contingent firm the client is often not seeing all of the results of the search, but only the candidates the firm deemed appropriate for the role, causing a lack of transparency in the recruiting process and allowing the search consultant too much control over the outcome.
A retained search firm is generally used for higher-level positions and is based on a payment process in which much of the cost is due up front prior to the search.
Typically the cost per hire with a retained firm is between 30% and 33% of the employee’s first year salary. The potential risks of such a model is that the more senior the position, the higher the wages, which in turn means that the payment for placing a candidate through such a search firm is extremely high.
For example, supposing that the position has a $600,000 wage for the first year, a company can pay up to $200,000 per hire.
The type of hire within retained recruiting is typically of higher quality, but too often these firms rely on the same resources that every other company has access to, such as LinkedIn or an executive-level rolodex that produces the same pool of candidates being accessed by other organizations.
With an hourly recruiting firm, a contractually-decided upon payment for research and recruiting services is determined. However, such firms often cost significantly less than their retained and contingent counterparts, averaging 13% cost per hire compared to the typical 30-33%.
While retained and contingent search firms require a basic percentage of the first year’s salary whether the project is basic or difficult, with an hourly firm the fee does not change depending upon the salary of the hire.
Hourly firms are traditionally more likely to take the time to find the right candidate for the right reasons, providing the client full control over the start and stop of the process and taking candidate qualification as far as is determined by the client. This type of firm can manage or augment a client’s recruiting strategy and usually consists of a team that is specialized across industries and functions, utilizing a variety of sourcing methodologies to access the entire candidate pool.
Additionally, within an hourly search model the client typically has access to all of the research and sourcing results uncovered by the firm, allowing full transparency to the process and creating a communication between firm and client regarding which candidates to pursue.
While each recruiting model has both pros and cons, not all models are equal. Hourly and retained models are generally the high-quality option, but retained models are high in cost. Contingent firms are more prone to yield low quality results due to the focus on payout.
Keeping such factors in mind will aid organizations in their search for the right firm and can greatly decrease the frustration that comes with finding the right candidate. Most importantly, one must note that when it comes to recruiting and search firms, choosing one with a focus on quality of hire is a must in today’s talent shortage.