Why is executive search pricing still a percentage?

Take a look at the history of firms like Korn Ferry or Spencer Stuart. They have been around for a while. They have seen the staffing world through muscle cars, disco balls, atari, the Internet and social networking. Work has changed so much over the years, but you know what hasn’t? How most search firms (not just KF and SS) charge. It is still a percentage.

I am not saying it’s a good or bad thing. But clearly the advent of technology and the increase in skill level of the corporate recruiter certainly makes us think differently about using any agency.

What surprises me most about the entire issue is that the pressures from clients have not changed the model more. There are so many other services that have moved to hourly pricing or flat rates and deliver high value, but search has not really changed. Install SAP and it’s an hourly rate. Can you imagine SAP saying give us 25 percent of your annual revenue?

Maybe tech is not the same as an executive, but I am sure the street cares more about the CEO and officers more than the type of inventory mgmt system.

So again, I wonder why has the percentage remained. Why the value based pricing? Do we really think that finding a candidate making 500k is twice as hard as one making 250k and four times harder than 125k candidate? Well let me tell you…it is not. Over the hundreds of positions I have managed at these levels, both directly and by observation, the higher up it goes the easier it gets. Don’t get me wrong…the work is intense. A great recruiter is going to talk with 40 to 75 well researched people on a hard search. But at the top, it’s actually easier to find the people to start calling on, that is because there are less of them.

I struggled to find another industry like this and then I saw it on tv the other day. Real estate. A percentage no matter what. Do we all really think that it’s twice as hard to sell a 500k house vs a $1M house? I don’t know if its twice as hard – I imagine its a little harder. But inevitably, we pay the fees as a percentage because of a perceived value and the relative nature of money.  There are real estate agents that take a flat rate or many do have minimum pricing that they will have in order to work with them – much like search firms. But also its pretty easy to spot the ones who can handle a $10M house.

As value changes in recruiting, this will continue to be a hot topic, but I do see that at less than 150k on total compensation that there is significant pressure on getting rid of a percentage. Over the last 25 years, the business quickly moved from greater than 25% to less than 25% for such positions, which is a value statement of its own. Because of the easy access in the recruiting industry, the natural economics will probably keep it there. More alternatives and models will arise, but many people will keep their spending habits.

As for me, I am fan of executive retained search. If you are going to spend money – then get a service that is greater than just the profiles, and demand quite a bit from your agency. Give them the ability to shine and present great talent. And if it costs 25 to 33%, then so bit it. If you are being smart with your agency spend, that means you probably engaged less, so the difference gets offset.

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