The custom is well established for retained search firms to calculate their fee as a percentage of the new hire’s compensation. It is a carryover from the days when only large corporations retained large search firms and the fees were impersonal line items in big budgets.
Today smaller, family-owned firms regularly use retained search consultants, and the traditional pricing policy has carried over with it. But the percentage model is actually counter to the client’s interests for two reasons:
1. If the fee is a percentage of compensation, it is in the search firm’s interest to present candidates with the highest price tags over viable, qualified candidates who could be landed for less;
2. It forces the client to minimize costs by out-negotiating the new hire, which starts the new working relationship off in an adversarial stance. At best, no harm is done; at worst (and more likely), someone feels like they ‘lost’ and emotion gets a toe-hold on Day 1.
If your search consultant’s fee is based on the new hire’s compensation, ask for a flat fee instead, based on the mutually expected complexity and difficulty of the engagement. If they resist, probe further: why is a comp-based fee in both parties’ best interest? I’d appreciate hearing their rationale…