Has your business reached the point that you’re considering paying for recruiting help? Whether you’re a young company finding that your networks are running dry, or an established business whose in-house recruiting team is understaffed, here are a few tips and questions to ask as you consider engaging external recruiters.
How agency searches work:
There are two models most typically used by agencies: contingent search and retained search. Retained is primarily for executive-level searches, and contingent is more common for individual contributor- through director-level searches.
- Contingent Search: This type of search is “contingent” in that you only pay the agency if you hire a candidate the agency presents – payment is contingent upon that. Fees are typically 20-30% of annual base salary. The arrangement is non-exclusive (unless explicitly negotiated), meaning you have the flexibility to release the search to multiple agencies.
- Retained Search: Typically used in executive-level searches, for retained search an up-front retainer fee is required, with 1-2 additional payments as the search progresses. Total fees are typically well into six figures at 30-35% of year-1 cash comp (base + bonus target). The arrangement is invariably exclusive, meaning you will work only with this firm and pay the fee regardless of the source of the hire.
Unless you’re looking for VP or C-Level talent, you’ll likely utilize the more common of the two, contingent search, so that’s what we’ll focus on in this post.
Contingent Search: Questions to Ask Your Agency:
- What does the agency charge? Traditionally, industry standard fee for non-executive hiring has been 20% of annual base salary. In the past. most agencies would start out asking for 25% and readily negotiate to 20%. However, in this era of exceptionally low employment, we’re seeing an initial ask of 30% in many cases, with ready negotiation to 25%. So in most cases expect to land at 20-25% of annual base salary.
- What sort of guarantee does the agency offer? There are two types of guarantees in recruiting agreements: replacement and refund. Often you’ll see a blend of the two. Let’s start with definitions (spoiler alert: you’re much better off with a refund guarantee):
- Replacement Guarantee: Should the employee leave within a few months of start date (you’ll negotiate the time frame), the agency will conduct a search and replace that employee at no additional charge. In other words, you will not receive a refund from they agency, but they agree to find a replacement.
- Refund Guarantee: Should the employee leave within a few weeks/months of start date (again you’ll negotiate the time frame), the agency is required to refund all or a prorated portion of the placement fee.
Clearly, replacement is in the best interest of the agency, and refund is in your best interest. There’s not much value to you in a replacement guarantee. Essentially, with a replacement guarantee you limit your recruiting efforts to the same agency who provided the candidate who didn’t work out in the first place. It’s not uncommon to see a blend of the two: maybe a prorated refund guarantee for the first 1-3 months, then a replacement guarantee through month 6.
Recommendation: Start out asking for a 3-month prorated refund guarantee, but be willing to flex on the time frame. Refund guarantees with longer time frames (over 3 months) put an unfair burden on the agency. There’s no better interview than the first few weeks of work, and if you can’t figure out within the first month that it’s not the right hire, there’s not much the agency could have done to prevent it. Beyond 3 months, responsibility for retention shifts to you – it’s your job to create a great workplace that your employees love!
What services does the agency provide?
The basic services you should expect with contingent search are:
- Sourcing: Sourcing is simply finding candidates. What resources will the agency utilize to find the right talent? Do they advertise? Use LinkedIn? Purchase attendee lists for industry- and position-relevant conferences? Create a list of target companies and identify people in roles similar to the one for which you’re hiring? Some of those are more time- and resource-intensive than others, but the point is that you want your agency spending time to dig deep to find the right talent, especially because you’re paying them well to do so.
- Screening: Reviewing resumes is just the beginning. You want your agency to conduct in-depth phone interviews to assess both skill fit and culture fit. At a minimum, you should get a summary that includes how the skills are a match, why the candidate is looking, and basic compensation expectations for every candidate they present. Ideally you’ll craft some questions together with your recruiter to help them target the best talent for your role and company.
- Reference Checks: If you want reference checks, be sure you’re very clear with the agency where this responsibility lies. Most agencies will complete them on request, but many companies prefer to keep this job in house for a few reasons. Reference checks typically take place very late in the process, after a decision to hire has been made (assuming references check out). At this point your agency recruiter is highly motivated to secure positive references, close out the search, and collect their commission. That, combined with the reticence people have to say anything negative in a reference, makes references completed by the agency often less than reliable. If references are just a process rubber stamp for your company, save yourself the time and let the agency do the work. But if you have legitimate concerns that you’d like addressed in reference checks, I recommend that you complete them yourself.
- Negotiating Compensation: This is another service that some companies prefer to outsource, and some prefer to keep in-house. Your recruiter should be an expert negotiator, and by offer time they should be well equipped to sell your role, benefits, and culture. On the other hand, the hiring manager has a unique role in getting the candidate excited about the job. In any case, you’ll be the one approving numbers in advance, but do be in conversation with the recruiter as you do so. They should know better than anyone at this point what components of compensation most motivate the candidate, what the competition looks like, and what it will take to close the deal.
Finally, don’t forget that you still have a role, even after you engage an agency. The number one piece of advice I have for hiring managers: be engaged and responsive. Spend time up-front with your agency recruiter, making sure they understand the role, opportunity, and company culture. Expect that they’ll have questions and need clarification, especially in the first couple of weeks as the search ramps up and they start talking with candidates. Investing this time early in the search goes a long way toward helping the recruiter hone their search and ensuring your expectations align with the market so they can provide the best-matched talent. In the long run it will save you hours spinning your wheels with the wrong candidates, so be assured it’s time well spent.
