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How do headhunters get paid for senior positions?

My understanding is for junior and mid-level positions, headhunters generally follow one of two paths:

  • Retained where they are in part paid for their time, but the basis is still a % of salary and expected or median bonus.
  • Contingent where they are paid on completion of the search, and the basis is a % of salary and expected or median bonus.

In both cases, the %s are clear - somewhere between 20-33%, and all cash.

It would seem that it gets more complicated with senior searches. For example, a COO may have performance compensation that is many multiples of a small base salary, and have it paid over many years. Or a CEO may have a small base, but lots of equity with a long term vesting period. And does a headhunter who places a million dollar CEO really get 20-33%?

How is headhunter compensation based in these cases? Is it a flat fee that is high (because senior jobs take a lot of work) but less than the typical 20-33%? Do they take equity when helping startups? Or is there something else that I'm missing?

I would especially appreciate responses from headhunters, or folks who have hired them for senior positions.

For added context: When I hire a headhunter for a junior or mid-level position, I understand the economics and know how to push. Nudging someone from 33% to 25% is good business. If I push a headhunter to 10%, I know the service will be poor, because they accepted an off-market price. I've hired enough juniors that I understand the game. Hiring very senior people is a much more bespoke game. If the market standard is, "Pay up front whether you hire or not" then it's useful to have in mind. Or if the headhunter asks for equity, it will help to know if this is the market standard.

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    Hi MathAttack. I feel like this is sort of outside the scope of a workplace problem and more a question about or pertaining to outside recruiters. Consider spinning the question so it has more impact as a workplace problem. Good luck! – jmort253 Aug 2 '12 at 1:25
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    My anecdotal understanding from things I've overheard in the workplace is that the headhunter gets the same commission rate (i.e. a fixed percentage of the new hire's salary) regardless of whether they find a junior or a senior candidate. However, in the case of executives and other very highly compensated but seldom recruited-for positions I would think that the company works out an agreement specific to that one position with the headhunter beforehand. It would be somewhat ridiculous for them not to. – aroth Aug 2 '12 at 2:27
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    FWIW - Headhunters make what they can negotiate for payment. As you noted the lower the rate the less effort they are willing to put in. The higher rates tend to attract more candidates but that does not mean high quality. As for accepting equity... that is a gamble some are willing headhunters take. Personally, giving equity into a company to a headhunter would make me want to jump ship if I was on the team. The head hunter gives a one time effort for regular returns... does not seem like a smart idea from the side of the business. – IDrinkandIKnowThings Aug 2 '12 at 12:48
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    @Chad - It's not particular to startups, though. This question is also good for medium and large businesses. I'm happy to ask it wherever I can get a good answer. – MathAttack Aug 3 '12 at 1:24
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    What is the "actual problems that you face". Otherwise it is just an open ended discussion. – mhoran_psprep Aug 5 '12 at 18:59
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+50

MathAttack - Recruiter of software engineers for 15 years mostly with start-ups. Your assessments of retained and contingency work are pretty spot on, with there are some variations and even combinations of those two arrangements. C-level searches for large companies are mostly done by larger retained search firms. They don't farm out C-level work to contingent firms.

For working with start-ups, it isn't uncommon to offer a recruiter an equity option, particularly if the company has funding concerns. These deals are usually initiated by the start-up, although if a recruiter firmly believes in a start-up's future the recruiter may make the suggestion (perhaps 15% fee + a certain number of options).

Regarding your last statement about judging value based on price, I can tell you that some recruiters (myself included) will come down on price for portions of payment being paid in advance. If I know I am exclusive on a search, and my client is willing to take on some of my risk, I am willing to cut my fees below my competitors for the sake of long term partnerships with the hiring firm.

In contingency recruiting, 100% of the risk is on the recruiter. In retained recruiting, 100% of the risk is on the hiring firm. By having the hiring firm invest a part of the fee up front, it shares the risk and allows for true partnership. That is the model I am currently using, and it is very effective thus far.

Good luck to you.

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    Was that your first post or 2nd here? Either way, welcome to Workplace. Thanks for the great info. This was just what I was looking for. – MathAttack Aug 7 '12 at 0:33
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    Yeah! Nicely done! I was happy to read a recruiter perspective! – bethlakshmi Aug 9 '12 at 13:55
  • I believe that was my first post here. I'll be back I'm sure and I'll try to add my perspectives when appropriate. Glad you enjoyed it! – fecak Aug 22 '12 at 18:50
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In my experience, the headhunter usually gets a percentage of the salary. It's rather unlikely that he will include benefits as part of his compensation because they are hard to estimate. If you think about insurance, what sort of percentage is right for an individual vs a family plan. That sort of reasoning applies to stock options because the equity in those options is subject to market fluctuations and/or business valuations.

I would hazard against offering any headhunter equity because they are not getting immediate payment for their services (think of an IOU) and they will not know if the stock they received was a great investment or a poor one. What I've seen is they might take an estimate of what the stock options will be in the future (the time varies based on the nature of the options) and they will request that amount in cash.

Executive recruiting can be a lucrative field, so don't be afraid to play headhunters against each other to get a good price. The headhunters might be persuaded to take a hit on percentage because the dollar amount will still be quite high.

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