Executive Sourcing Agreements Explained

There are several responses to this question. The responses are based on the client’s needs, the search criteria, time frame and degree of difficulty. There are three basic types of consulting agreements, they are: Retained, Engaged and Contingency.

Retained Consulting Agreement

Is one in which a fee is guaranteed to be paid to the search firm by the client company at the time the client initiates the search. The fee is usually a percentage of the total compensation package and is paid at the time the search is initiated and is paid at agreed upon intervals. There may be other fees such as administrative fees, associated with this type of search.

This type of agreement is often used when the client is seeking C-Level Executives, VP’s and Directors. These types of searches are time sensitive, there are a few possible candidates and the best candidates are passive and not active. A benefit of this type of agreement is the search firm will replace the candidate within 180 days under certain circumstances.

 Market Shapers Point of View

We concur with using this type of agreement when the situation is as described above. However, we prefer the fee to be a flat fee as opposed to a percentage of the candidates first year total compensation package. We believe we are better able to act as the bridge between the client and the candidate when our fee is fixed. The emphasis is where it belongs: It is on Market Shapers to source the best possible candidate in the shortest period of time and do so with the best interests of both parties primary in our search.

 Engaged Consulting Agreement

 Is one in which a percentage of the final estimated fee is paid to a search firm by the client at the initiation of the search. The remainder is paid if the engaged search firm finds and the client hires the candidate. The engagement is negotiable but is usually based on the candidate’s first year compensation package. The engagement fee is non-refundable. There may be other types of fees associated with this type of search, such as administrative fees.

This type of agreement is often used when sourcing managers and at times Directors. These types of searches are often used when the search is time sensitive but the client does not want to be exclusive with the search firm. That is, the client reserves the right to source the candidate and therefore, there exists the possibility of the search firm being paid only the engagement fee. A benefit to this type of agreement is the search firm will replace the candidate within 120 days under certain circumstances.

 Market Shapers Point of View

 We concur with the use of this type of agreement but only when the client is a known entity and when there are multiple positions being sourced under the same agreement.

Even under these circumstances we would prefer to be engaged on a flat fee basis. Market Shapers will agree on the flat fee, accept a percentage of the fee to initiate the search and begin the search based on a good faith agreement.

 Contingency Consulting Agreement

 Is one in which the search firm is paid an agreed upon fee, usually based on the candidates first year compensation package. The fee is payable if and only if the client hires a candidate presented to them by the search firm. There is no up-front payment but there is an agreed upon fee and there is an agreement between the client and the search firm.

This type of agreement is usually used for lower level positions, office managers, technicians, etc. When the position is not difficult to fill, when there are little or no time constraints and where there will be many qualified candidates.

 Market Shapers Point of View

 We concur with a client using this type of agreement and will usually agree to participate in searches when this type of agreement is in place. However, we will do so only where there exists the possibility to do more work with the client. We will do so on a fixed fee basis, we will guarantee the candidate for 30 days and payment of the fixed fee upon the candidates start date.