Executive Search Contracts:

Term and Conditions

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Agreements for Executive Search should, first of all, be clear and easy to understand. Contracts that are unnecessarily long and contain convoluted legal expressions should be considered with concern. Core agreements at most high quality search firms are typically 3 to 5 pages -- although marketing and background materials will add to this.

The terms and conditions used in virtually all management recruiting agreements are explained below along with ideas on what are most commonly used in the industry.

Clause 1:
Search Fees:

EXPLANATION:

In days gone past, professional search fees were relatively fixed. Legacy search fees were 30-33% of total guaranteed compensation of the person recruited and paid in 3 instalments:

1. Initial retainer -- 1/3 of the estimated total fee and billed on commencement
2. Second retainer -- 1/3 of the estimated total fee and billed after 30 days
3. Final retainer -- the balance of the total fee billed after 60 days whether a successful candidate is found or not

Today, there are many more variations of the above standard as firms differentiate themselves and adapt to their local environment. Many now use fee structures that are more performance based such that retainer instalments are billed for project milestones such as when a short-list of candidates is provided or after the successful candidate signs the employment agreement. Others use blended structures that charge a small up-front retainer and a balloon payment after a successful candidate is found.

The fee is usually calculated as a percentage of total compensation and this also needs to be defined. Some firms are aggressive at defining total compensation to include any and all forms of cash and non-cash income including restricted stock plans, estimated variable bonuses and so on. Most use base salary plus any guaranteed bonuses and allowances.

WHAT IS COMMON?

In so-called developed countries, search fees and terms of payment are currently in flux but there is a clear trend away from the straight 1/3-1/3-1/3 model toward lower fees and performance deliverables. In emerging countries of Asia, fees are generally lower (20-25% of first year's guaranteed compensation) and payments made for defined deliverables.


Clause 2:

Expenses:

EXPLANATION:

Executive Search projects generate some acceptable expenses to fulfil.  Since senior executives work long hours, travel frequently and have onerous confidentiality concerns, it can be costly to communicate with them and these are usually reimbursable. Other allowable costs include private meeting rooms for interviews and air transportation to deliver candidates for interviews in regional head offices.

WHAT IS COMMON?
In some countries, search firms charge a flat administration fee of 10% as part of their total fee. In the emerging countries of Asia, out-of-pocket expenses are estimated at the end of the search and billed.


Clause 3:

Replacement Guarantee:
 

EXPLANATION:

Search firms should guarantee their work. Most will guarantee to conduct a replacement search if a recruited candidate stops working with the client company within a period of time.

WHAT IS COMMON?
In most cases, the guarantee period is 6 months but may be as long as 1 year. Guarantee periods of less than 6 months should be cause for concern.


Clause 4:

Off-Limits:

EXPLANATION:

Off-limits is an industry term for agreeing not to recruit candidates from clients. The off-limits period generally starts at the beginning of the search and continues whether a placement is made or not. When clients are very large with many subsidiaries, it is common to limit the commitment to a specific division. Off-limit commitments can be a big concern when attempting to work with large recruiting firms since they often work with a number of companies in the same industry and this will severely limit the pool of possible candidates.

WHAT IS COMMON?
The usual off-limits term is 1 to 2 years after commencement of the search.


Clause 5:

Parallel Processing

EXPLANATION:

Parallel Processing is a commitment to not present candidates to multiple clients at the same time since doing so would result in clients bidding against each other. The concept is also known as candidate blocking. It is usual in retained executive search but impossible when dealing with contingency staffing agencies.

WHAT IS COMMON?
Parallel processing is mainly a problem in larger search firms. Since they employ many search consultants, they commonly deal with multiple clients. The result is that their pool of candidates to draw from can be smaller than boutique firms. Many search firms will not address the candidate blocking issue unless asked directly.


Clause 6:

Timing:
 

EXPLANATION:

Most firms give an estimate of when the client should expect to receive a candidate shortlist and be able to make hiring decision.

WHAT IS COMMON?
A lot will depend on the difficulty of the search so definite timing commitments can never be made. However, most firms can provide an initial short-list of candidates within 20-30 days and aim for a qualified hiring decision to be made within 2 to 4 months.


Clause 7:

Who Performs the Search?
 

EXPLANATION:

It is important for clients to know precisely who will do the day-to-day work involved in the search. At boutique firms, search consultants are usually partners and take hands-on responsibility for most search engagements interacting directly with candidates and clients. At larger firms, this approach is usually not possible and search consultants manage junior associates for project execution. Many "top-billers" in the search industry are rainmakers -- excellent salespeople who focus their time on this function. Once the search agreement is signed with the client, they are off to make the next sale and leave the search to less senior staff to administer.

WHAT IS COMMON?
Search agreements often are not clear about who will oversee the search from a day-to-day perspective. Most clients feel strongly that it be made clear who they are hiring to do the work and this concern needs to be addressed directly and added to the agreement as required. 


Clause 8:

Confidentiality:
 

EXPLANATION:

Most executive search assignments have confidentiality as a requirement for various reasons. Many candidates who are senior in their roles risk their careers if it becomes known they are considering moving to a new employer -- especially in Asia. They will need various assurances that their conversations are private. Clients, on the other hand, usually do not want the status of their senior positions known, either because the search is for a replacement of someone currently in the role or because clients, suppliers and employees may question the health of their organization. (Some competitors may seize on the "instability" of their rivals.)

WHAT IS COMMON?
For the above reasons, search firms should not provide the names of their clients to candidates until the client states interest in interviewing them. They also should not provide names of their current clients for sales purposes without clear permission. Search firms that openly state clients' names may be disregarding their confidentiality.


Clause 9:

Exclusivity:
 

EXPLANATION:

Exclusivity is a key differentiator between executive search consulting and contingency recruiting (also known employment agency, staffing, personnel recruitment). As with other professions like architecture, accounting and law, management recruiting is a professional service requiring specialized and advanced skills, and it is provided on an exclusive basis. Confidentiality is a critical concern of most candidates (and clients) and this can only assured if a senior level consultant is singularly and exclusively responsible for overseeing the search.

WHAT IS COMMON?
Executive search assignments are almost always exclusive. Non-exclusivity is common for recruiting junior level candidates that are easier to define and attract. In rare instances, clients may insist on exclusivity for a period of time with the objective of opening up the search if no candidates are found.


Clause 10:

Sourcing Candidates:
 

EXPLANATION:

Search agreements may indicate how they source candidates. It is generally understood that highly desired managers are successful and happy at their current employers and would not send their confidential resumes to job postings, career fairs and contingency employment agencies. Such people can only be found and attracted through time-consuming methods of direct sourcing by people who are knowledgeable and well known in the industry. Sources such as job postings, job fairs, advertisements and resume databases, on the other hand, are used for acquiring junior level candidates who may be out of work, new to the workforce or unhappy in their current positions.

WHAT IS COMMON?
Firms that say they source candidates through job postings, job fairs and resume databases are probably not executive search firms but contingency employment agencies who would like to be executive search firms.


Clause 11:

Time Limit:

 
EXPLANATION:

Some firms will only commit to search for candidates for a limited time whether suitable candidates are found or not. They will then cease their work until clients agree to extend their fee arrangements.

 
WHAT IS COMMON?
Once engaged, search firms should not cease their search activities until the assignment is completed or the client instructs them to end.
 
 
 

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