I came late to the retained search game, starting only a few years ago as a reaction to the social media hiring market.
After getting burned on a series of contingent searches that took months of time, only to end up with nothing, I switched over to a retained agreement and didn't look back.
In hindsight, it's the only model for a small firm.
A retained contract is a staffing solution where a company pays a headhunter a deposit upfront for their services. The deposit is then credited against the eventual placement. In essence, the company is giving exclusivity to one recruiter whose job it is to find ideal candidates and close them.
A contingent contract is a staffing solution where a company pays a headhunter only after an offer has been made and accepted, and the candidate actually starts at the position (and in many cases, that fee is not paid until the end of a guarantee period, even when the contract says otherwise).
Any search taking place without any contract in place is what is known as damned foolish, and usually only happens once in a recruiter's career.
I like the retained search because it levels the playing field, is the most honest and fair, and allows the recruiter to serve the interests of client and candidate and internal recruiter equally. What does that mean?
A retained seach levels the playing field by requiring everyone to put skin in the game.
The company pays up front. The headhunter must deliver, as they've taken partial payment. The internal recruiter can focus on following the process, and the candidate trusts everyone involved. If it costs the company nothing up front, they have the option of not taking the job search seriously. They can hold out for the perfect candidate. They can decide to wait on hiring. They can play games with salary. A contigent search is a game of what if that many different people inside a company can affect. A retained search has money going out the door, which means everyone has a stake in failure. This tends to concentrate focus.
A retained search requires balanced service levels.
There is a misconception from candidates that recruiters work for them. It's not true because recruiters are paid by the company, and thus work for the company. Under a retained search, the recruiter truly works for the company, and not against competing interests.
Rather than explaning, I'll give some examples.
1) The internal recruiter is still looking for a placement.
Internal recruiters are seldom rewarded for making awesome placements, but they are certainly penalized for having to use outside firms. In many HR cultures, using an outside firm is an admission of failure. An internal recruiter that needs to use outside help always has an incentive to hire their own candidate. The argument made internally is that a third party firm should be providing a better candidate if they want to get paid. That's true, but how do you judge two candidates side by side when the choice of one candidate affects the interviewer more than the other?
What this means is that the outside firm has to deliver a clear winner. Anyone in hiring knows this isn't how decisions are made. This means the best candidate doesn't always win.
2) The candidate wants more money
In a contingent search, a candidate can ask for more money with relative certainty of having negotiating power. They know the search was difficult for the company. They know the recruiter doesn't want to put all that time in only to lose at the last second. The company, in addition to lost time, fears not finding another candidate. This is a structural flaw in the contingent model.
In retained search, the recruiter has the resources to keep a pipeline open until a placement is made. Even when the search is looking almost complete, the retained recruiter continues making calls. We have to have the power to cut a candidate off for playing games (and a good retained recruiter has already covered salary negotiation prior to submission). This limits last minute power-plays, common in high-demand areas.
3) The manager isn't sure what they want
When it comes to new technology, and new skills, searches on the cutting edge are very dangerous for contingent recruiters. Managers who are not involved in a heavy vetting process quite simply don't know who they want to hire. They're skittish, because they're trusting someone else to know more than they did, often to their detriment. Ideally, every manager wants the perfect employee at half of their market value, smart enough to do the job, but too dumb to know they can make more. Contingent search gives managers that option, allowing then to pick and sift for the perfect candidate at the less than perfect cost. This is manifesty unfair to the recruiter, but it makes perfect sense to the manager, whose job is to minimize risk.
4) The recruiter is the only game in town.
Managers in dire need. Managers in small companies. Managers who just lost a key employee. All of these situations give power to the recruiter, whose day-in, day-out job is surveying the job market. Managers lack the information recruiters possess, and the more immediate the need, the less power they have. When you need someone now, you'll grasp at straws. In a contingent situation, the manager is often left taking what they can get, both in terms of the staffing salesperson and the candidates they offer.
In the videoblog Importance of Salespeople in Staffing, I discussed how salespeople are really information brokers greasing the wheels of the employment market. Our job is to identify what companies need to hire, so that we can service those accounts. As companies only pay us when we're successful, they are dependent on what salespeople call them. As many managers find out, the salesperson is only as good as their recruiter network, which is to say that just because someone is good at getting you on the phone, doesn't mean they deliver what you need.
Like men who only date women who make the first move, managers often end up the victims of those salespeople who do call.
Retained Search is only a small part of the market. Companies quite frankly prefer the contingent route because they fear getting taken advantage of, and they overestimate their ability to manage the damage of choosing a recruiter. You can't measure the cost of lost time as well as you can a failed search. And recruiters do themselves no favors, failing to sell their services at a premium and many afraid to ask for payment up front.
This isn't to suggest contingent recruiters aren't as good. In fact, there's often more money in contingent recruiting precisely because more companies are willing to give you a chance. If you're a recruiter, you have to ask yourself, do you want the chance to work for free?