Companies have long utilized a mix of retained and contingent agencies in their recruiting toolbox, but since the recession, usage of contingent agencies has soared while fees paid to retained have shown moderate growth at best. What’s going on?
In today’s post, we’ll show you some statistics and three reasons for the shift. First, let’s get some definitions out of the way so we’re all on the same page.
Retained Agencies
Retained agencies can range from boutique to monstrously large. Fees tend toward the high side (30%) and, notably, are paid regardless of whether the candidate is hired. Yep, whether they find someone or not. These are exclusive engagements and the market is dominated by large, national firms.
The “Big Four” (Korn/Ferry, Heidrick & Struggles, Russell Reynolds and Spencer Stuart), commanded around 20% of the market in 2012. Yep, monstrously large. Often, these get exclusive access to job orders by bypassing HR and working directly with hiring managers with whom they’ve had a prior relationship.
Contingent Agencies
Contingent agencies are smaller, nimbler, and more specialized. The largest contingent firm in the US in 2012 (Robert Half) had only 4% of the market, and the landscape is fragmented into thousands of niche firms. Unlike retained agencies, fees are generally guided by the market (ranging between 18-25%, but averaging 20%).
The most crucial difference, however, is that contingent groups are only paid upon successfully placing a candidate, making them ideal for HR departments looking for performance and accountability.
The Recession Altered the Course of Retained Agencies
Since 2008, contingent groups have taken off like a rocket ship!
The mix of retained vs. contingent has changed dramatically since the recession ended in 2009.
In 2014, more than $14 billion dollars (holy smokes!) will be spent between both types, but the mix has changed substantially since the recession in 2009.
In 2009, they earned $3.5 billion in fees, but since, they have taken off like a rocket ship to Mars…
Now earning over $8 billion dollars.
Today, 3 out of 5 times an employer pays a fee to find a candidate – the winner is a contingent agency.
How Did This Happen and Why?
HR Seizing Control:
Prior to the recession, the hiring manager made most of decisions on which agency to use. Budgets (and oversight) were looser. The hiring manager generally chose the agency that had placed them – you scratched my back, I’d scratch yours.
Since the recession, more money has flowed to HR (as a result of tools like Linkedin) and, thus, more power. HR now is able to control job orders, evaluate headhunters, and shine sunlight on the process of who is used. Advantage contingent firms.
Tighter costs, tighter $$$
The flip side of the recession is that the money simply dried up. When it slowly returned, the free spending days were over. HR not only has more control now, they have become wiser. One HR director told us, “now when I see a Hiring Manager request a retained firm, my “spidey sense” starts tingling. I know something is fishy”.
Most HR managers know they can get quality headhunters working on fees without paying a fee upfront, and they can take the risk out of the equation.
Better headhunters
In the end, it all comes down to quality. The recession flushed a lot of pretenders out of the market. There were too many bad headhunters chasing too few job orders in 2008, and many of them left for other jobs, leaving the strong to survive.
Many large executive recruiting firms also contracted, causing many of the good retained recruiters to strike out on their own. Now that it’s easier to discover good niche headhunters, and evaluate them by their track records thanks to marketplace platforms like BountyJobs, specialists are thriving. By all accounts, headhunters are better and more effective than they have ever been.
At BountyJobs, we are intrigued to see what the future of retained vs. contingent agencies holds. We know the value of a great headhunter and do everything we can to promote a healthy working environment for both employers and headhunters.
Do you have some insight on the post-2008 retained vs. contingent conversation? Share in the comments below.
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About the Author: BountyJobs Marketing
