Working with a Headhunter - Part 2: Different Types of Headhunters and How They Operate

In the previous post, I gave an overview of the role of a headhunter.

In today’s post, I will talk about the different types of headhunters and how they normally operate. I am sharing my perspective as a headhunter and also as a user of headhunting services, having spent a few years in an in-house talent acquisition role.

To help readers better understand, I have broken the article down into 4 parts: 1) Commercial Model; 2) Specializations; 3) How Search Firms Go About Finding Candidates; 4) How Search Firms Present Candidates to Clients.

1?? Commercial Model

Broadly speaking, headhunters are engaged by their clients, either on a retained or contingent basis.

??Retained Model

Under a retained model, the client commits to paying a fee, regardless of the outcome of a search. Typically retained searches are meant to find senior executives. The “Big 5” in the retained executive search industry are namely Korn Ferry, Heidrick & Struggles, Egon Zehnder, Russell Reynolds and Spencer Stuart, also commonly known as the “SHREK” firms. ?(first letter of their names)

The fee for an executive search undertaken by a top firm is typically one third of the candidate’s first year total estimated annual compensation package. ?For example, if the candidate is offered a total annual package of $600k, the fees will be $200k.

Sounds like a really lucrative business huh? ??

Yes, it can be indeed. The top billers in the top executive search firms are as well paid as CEOs. But increasingly it is also getting more competitive. Many “Tier 2” executive search firms and “mass market” recruitment firms have been trying to compete for work in the high-end executive search segment. With the readily available information via the internet, it has also become easier for companies to reach out to top talents directly, without needing to rely on headhunters.

Hence, in recent years, many executive search clients will negotiate for a fixed fee so that their fee exposure will be capped.

??Contingent Model

Contingent model essentially means that the fee to be paid by the client is contingent on the successful placement of a candidate.

Most clients would typically prefer to work on this model since there is no upfront financial risk for them. Companies usually will only commission a retained search for very senior and/or critical roles or in cases where they need to maintain confidentiality at the highest level.

The commercial terms for a contingent search are somewhat different from how the big retained firms calculate the fees too. A typical fee percentage common in the industry will range between 18% to 25%, based on the annual base salary of the placed candidate. Note the 2 main differences with the typical retained search fees: a) fee percentage and b) fee based on total annual compensation vs base salary.

Typically, a client would also use 2 to 3 headhunting firms if they are commissioning a search on a contingent basis. Reasons being: a) broadens the pool of potential candidates; b) since it is based on success, there is no financial commitment to use a few firms at the same time. When there is a strong relationship and trust with a headhunting firm, a client may give the work to a headhunter on a contingent but exclusive basis, meaning that only one headhunter works on the search. In this case, the client trusts that the one headhunter can deliver what they want and the headhunter stands a much higher chance of completing the search successfully and landing a fee since there are no other competitors.

2?? Specializations

There are so many headhunting firms out there and to the layman, it can be quite confusing to figure out the differences. Broadly I would classify them under the following categories.

???Big Global Retained Executive Search Firms

They would have consultants covering different industries and job functions. The commonality is that they focus on senior executives searches and will not take on searches that fall below a certain compensation level or on a success basis.

???Big Recruitment Firms (not exclusively retained)

These are usually international firms with multiple offices around the world. They do work across a wider spectrum of seniority levels. They will likely have consultants covering different industries and job functions as well. They can do work on a contingent or retained basis.

???Specialist Recruitment Firms

They specialize in a specific area such as industry vertical or job function. For example, there are search firms just doing work for clients in the financial services sector. While there are others which specialize in HR roles, legal roles, engineering roles etc.

???Boutique Firms

They are usually standalone firms with a presence in one or at most a few locations. Many boutique search firms are actually very small. Their offerings can overlap with the 3 types of firms mentioned above and in fact, many bigger firms often start off as a small boutique before growing and becoming one of the 3 types mentioned above. ?

Importantly, regardless of the specialization that each firm offers, it would be worthwhile to do some quick research on the firm to understand what they can offer and what roles they have placed in the past to get a sense of how credible they are. ??

3?? How Search Firms Go About Finding Candidates

There are a few ways that search firms usually go about finding candidates:

??Headhunting Approach

This means going after typically passive candidates whom we think might be a good fit of the roles we are looking to fill. We can go after such candidates through various means: 1) on a platform like LinkedIn if we don’t already know them; 2) contact them directly via email/phone if they are already known to us; 3) through referrals and recommendations from our network etc.

??Job Advertisements

Many recruitment agencies will supplement the candidates found through proactive hunting with the putting up of job postings to tap on the active job seekers pool. Usually, this approach is more effective for more junior roles because the pool of candidates who would meet the requirements should theoretically be much bigger. Also, more junior candidates usually wouldn’t have a long track record and market reputation to make them more obvious to hunt down.

??Databases

Recruitment firms would of course have their own databases of candidates whom they have interacted with over the years. Some of the large recruitment firms that do work across a spectrum of seniority levels should have huge number of candidates in their databases as they put up job advertisements regularly. Of course, some insiders will tell you that some of these job ads can be fictitious – they are meant for the recruitment agencies to collect CVs.

I would also add that the additional edge that one recruitment agency has over another because of a bigger database has diminished over time. This is because most information in a database will become outdated over time unless someone updates the information on every candidate regularly, who is not possible. With the availability of LinkedIn and its widespread adoption, it is probably THE go-to database since it is dynamic and most up to date, with each user updating their own profiles.

4?? How Search Firms Present Candidates to Clients

??Retained Model

Under a retained model, the search firm is engaged exclusively by the client hence there is usually a more structured process in how the search firm engages candidates and presents them to the client.

The search firm will have an in-depth interview with potential candidates and present the shortlisted candidate profiles, along with their assessments and recommendations, to the clients. There will usually be regular progress meetings where the search firm will talk through the candidates to be presented and share market observations too. There will usually be comprehensive progress reports being presented to the clients as well.

??Contingent Model

Under a contingent model, the candidate and client experience will be somewhat different.

As shared earlier, a client will typically engage a few headhunters if they are working on a contingent basis. Due to this reason, speed is of the essence and it is in the interests of the respective headhunters to surface their candidates as soon as possible before a competitor successfully places someone in the role.

Hence, headhunters cannot afford to have a long-drawn process before presenting a candidate. It is also not practical for them to write long assessment reports on the candidates or wait for a big slate of presentable candidates to surface before presenting them to a client. Often times, a lot of recruitment firms simply send raw CVs to clients to quickly “stake claim” in a candidate before he/she is presented by someone else. We tend to see a broader range in the quality of engagement under the contingent model.

??Personally I don’t think there is one “superior” commercial model vs another. It really depends on the needs of the clients at that point in time.? Both models have their pros and cons.? But I think it is useful for candidates and clients to understand the drivers behind how headhunters operate so that you can get a better outcome when working with them.

In next post, I will touch on how best to engage with headhunters, as a candidate.

??Stay tuned to my next post: “Working with a Headhunter - Part 3: Working with a Headhunter – As a Candidate.”

About me:? ?I am the Managing Director and Founder of Talliant Advisors, a talent advisory firm offering executive search, executive coaching and board advisory services. ?I have 16 years of executive search and in-house talent management experience gained from working in some best-in-class companies: Russell Reynolds Associates (RRA), Korn Ferry and Temasek International.