Three million jobs currently go unfilled in the U.S. due to a lack of candidates with the requisite skills. Meanwhile, the national unemployment rate hovers just below 8% officially, or much higher unofficially, counting those who have given up or are “under-employed,” and workplace participation is at a 31-year low. These statistics illustrate that even during economic slowdowns finding the talent to fill certain highly skilled jobs is difficult. This is especially true in executive ranks, where attractive candidates continue to seek and obtain compensation in the high-level six-figures often in the seven-figures.
As in professional sports and entertainment, the cost of top-tier talent is a consequence of demand exceeding supply. Smaller firms may not pay at Fortune 100 levels, yet no investment is more critical than money spent on those few top leaders chosen to become the CEO’s or President’s closest advisors, in effect, his or her “cabinet.” A misguided selection can ruin the firm. A wise selection can produce undreamt of success.
Recognizing the importance of wise executive selection, most growing companies eventually retain an executive recruiter. Since there is almost never a shortage of executive candidates, how do they justify the extra expense? Entrepreneurs often discover after a few missteps that many candidates who come well-coached in interview skills are much more talented at landing a good job than actually doing a good job once hired. Furthermore, the most desirable candidates are usually currently working, not scanning job postings. They must be actively recruited.
Outsourcing executive recruitment, however, raises the same set of issues, one step removed. How do you hire the right recruiter? Plenty are available, but the range of quality, fit and outcomes is enormous. And as with all sub-contractors, relationships with recruiters must be carefully managed for best results. Who in the company has experience managing executive recruiters?
Mulkern Associates has developed a set of proven processes and practices to maximize outcomes related to the selection of and relationship with an executive recruiting firm. These processes and practices are based upon the following distinctions and decision points:
- Retained versus Contingent. Retained recruiters require their full fee, roughly 30% to 33% of the new hire’s first year’s cash compensation within the first 90 days of starting the search, long before a candidate is usually hired. Contingent firms are paid only if you hire a candidate they send. The contingent recruiter would seem at first to be the best deal, but experience shows us otherwise. The retained firm is willing to put in the hard work and hours to produce. The contingent firm depends on volume to generate revenues and will sometimes send the same candidates you can generate yourself with a listing on execunet.com. You may be able to negotiate a hybrid of the two types, a “contained” arrangement, in which the last third of the fee is withheld until hire of a referred candidate.
- Specialty. The best firms admit that they are not good at everything. Ask about recent and successful searches in the area of specialty that you need.
- Time in industry. How long has the firm been in business and what experiences do the principals have in your industry and required specialty area? A network of contacts is one of the recruiter’s most valuable resources and takes years to build.
- Completion and stick rate. What percentage of searches has ended successfully in the past three years and what has been their “stick rate?” That is, how long do hired executives stay? What actions after hire does the recruiter take to ensure longevity?
- Who will source candidates? A senior partner may sell you on the search, only to turn the hard work over to a junior person with little credibility and meager contacts. Also, the inexperienced researcher can turn off great candidates with an inept phone call.
- Who have they worked for lately? Have they recently completed searches for organizations that you think would be an excellent source of candidates? Those firms are off-limits to recruiting under their contract. This raises the next issue.
- Off limits agreement. The best recruiters will become very familiar with most of your executive team as they undertake the search. You would never explicitly allow those same executives to be targets for your recruiter on behalf of other clients just one year after the search is completed. Yet many recruiters will promise you only one year off limits after a candidate is hired. Ask for three years or more, and do not settle for fewer than two.
- References of recruiter. It is risky to choose a recruiter simply on the basis of word of mouth referral. Ask for several references to the Presidents or CEOs of past clients. Prepare penetrating questions regarding the process, time it took, when the executive was hired, and other support the recruiter offered.
- How are search criteria developed? The most effective firms start with a comprehensive needs evaluation, which is more than a job description. It means learning your history and culture and plans, interacting with the executive team the new hire will join, and exploring in depth the formal and informal requirements and expectations of the job.
- Screening process and presentation. Part of what you are paying for is in-depth evaluation. How does the recruiting firm do that? What information do they provide besides a resume? What comparisons among candidates are provided? Do they meet all candidates in person before presenting them? What percentage of possible candidates makes it through their screening and is finally presented to you?
- Background checks and references of candidates. We have seen clients of recruiting firms ready to make an offer after an extended screening and interviewing process, only to discover that last minute checks of educational, credit or professional references disqualify the candidate. This amounts to professional malpractice. Some 25% of resumes contain false claims regarding educational degrees alone. Ask what background checking is done in the screening process and before candidates are presented.
- Parallel processing. The term refers to a candidate being presented by the recruiting firm to more than one client at a time. Don’t allow it. Otherwise, the recruiter can create a virtual auction among hiring companies who are competing with you for the talent that you have paid to have sourced in the first place.
- Guarantees. Most firms guarantee to replace a candidate without cost if he or she is terminated in the first year for poor performance. What you need to find out is how often they have had to make good on this guarantee. The time involved in filling an executive position is too great to be expended twice in one year.
- Boutique or large firm? The largest recruiting firms have Fortune 500 companies as clients and offices in major cities worldwide. The mere mention of their names grabs a candidate’s attention on the phone. Senior partners have in-depth industry experience and contacts. However, they may turn the work over to junior associates, once you have signed the contract. Some limit searches to jobs that pay at least $250,000 per year, and their obligation to the search expires after one year, whether the job is filled or not. They have less flexibility in negotiating contract terms, dictated by corporate headquarters. Smaller firms can offer more personalized service, look to build long-term relationships, and principals of the firm will do the search. Typically, they remain committed till the job is filled. Their networks are rarely global, but may be quite deep regionally in specific specialty areas.
- Candidate treatment. Top candidates are sometimes out of work for reasons beyond their control and may contact recruiters for help. Some recruiters who treat their clients obsequiously treat job hunters dismissively if not with downright disrespect. This drives away talent and may leave candidates with a resentful attitude by the time you see them. Consider having a colleague pose as a candidate to test whether the firm is one you would want representing you.
Once a recruiter is selected, you need to form a tight, working relationship with the person handling the search. Expect weekly reports and provide candid, detailed feedback on candidates and strategies. Include the recruiter as a highly respected team member, and listen to feedback on candidates’ perceptions of your company. Expect your concept of the ideal candidate to evolve. At the same time, be firm about your requirements. If this tests your recruiter’s patience, remind them that this is why they were hired—because selecting the right executives is one of the toughest jobs of any company owner. The best recruiters appreciate being seen as valuable resources and will rise to the challenge.
If you need assistance with selecting or managing an executive recruiter or advice on negotiating the agreement, give us a call.