In all the years I’ve been recruiting, the question of fees always comes up. Search firms are so integrated into business culture these days that no one questions paying for the work; most clients understand the need for retained search. What is questioned is why the fees are calculated in the way that they are.
In short, the fee breaks down like this: a recruiter earns 25-33% of total compensation (including bonuses) for more senior roles, and usually 10-20% for contingency searches or referrals. Big or small, national or not, that’s what most firms are charging. Companies ask, “Why is it calculated as a percentage of the hired candidate’s base salary? Why not a flat fee? Why not an hourly rate like our lawyer?” All fair questions. After nearly 15 years in this business I honestly don’t know why it’s done this way; it’s just always been that way. At SGES, we simply don’t like it. So we don’t do it. We charge a flat fee.

The price tag

When I was a recruiter working inside a large national law firm, I regularly completed check requests in excess of five figures to pay recruiters for finding attorneys. We were not only paying for the candidate we ultimately hired, we were also paying for the search firm’s network, its connections, and for the time the firm’s recruiters spent sourcing candidates. Developing a network is a lot of work and paying to find top talent makes sense.

What I didn’t understand was how we came up with the numbers we did. The national firm raised base salaries across the board every year, so, consequently, we’d have to pay the recruiters more money to do the same work they were doing in the previous year. We’d create an incentive package for a partner, and the recruiter would get 25% of the total compensation regardless of what it looked like. Then, the recruiter would negotiate to increase the candidate’s compensation, thereby increasing his/her total cut as well. The whole process felt like a conflict of interest to me.

Following the money

Recruiters are paid less money to fill more junior positions than senior positions, even though they essentially do the same amount of work finding both candidates. The firm I worked for threw requisitions out to as many recruiters as we could, hoping and praying one of them would have a good candidate. We didn’t pay retainers and we rarely gave exclusives. As a result, no one invested in recruiting for us—we got lucky and there were a few people who were loyal but more often than not it became a free for all of who could get us candidates faster. It also meant we got tons of resumes that were not the right fit and often couldn’t fill roles we needed filled. Why? Because recruiters focused on roles they could fill easily based on their networks, and they focused on the higher-paying roles, which were not always the ones we needed to fill. In essence, they followed the money.

The aha moment

A few years later I moved to Maine and started recruiting on the “outside.” Maine is not Boston, so our fees were less—usually 20-25% of the base salary, but I was still confused as to why fees were salary based, and still no one could explain the reasoning behind the numbers. Because I was working for a search firm, I couldn’t argue too much, and I certainly couldn’t set my own fees.

I found that when I was working on nonprofit searches or with startup companies, I worked “harder” than I did when recruiting for big law firms because the smaller organizations didn’t have the internal supports of the larger firms and companies. Some searches were easier than others, but the fees remained the same regardless.

Breaking the mold

When considering fees for SGES, we decided on a flat fee because whether our client pays an $100k salary or $2.5M salary for a CEO, our contribution in conducting the recruiting is the same. We work just as hard to find the candidates who will get paid $100k as we do for the candidates who get paid $2.5M.

 

We also chose to only do retained work because we see ourselves as partners with the companies and organizations we recruit for—committed and loyal. We work together and are mutually invested in the success of this work.

Recruiters are valuable partners to business and should be paid appropriately, but the percentage of base salary is the wrong incentive and sends the wrong message to the marketplace.

At SGES, we believe that our contribution should not be tied to the salary you pay your candidates. Our flat fee allows us to honestly negotiate salary on your behalf. Flat fees for every search. Period. It’s about the process. It’s about the partnership. It’s not just about the salary.