The Executive Search Industry, worldwide, is a $200 Billion per year phenomenon, still very much growing and in demand. Companies, even those with the world’s most advanced search capabilities, such as Google, still pay enormous fees for finding candidates. For example, Google paid the world’s highest search fee ($100,000,000+) to Heidrick and Struggles, for finding Eric Schmidt to be their new CEO, back in 2001.
I have been in the Search Industry for almost 30 years, myself, and yet people still ask me: “Why do companies need recruiters to hire people?” The answer is stunningly simple, especially in these times. With 7,000,000 current job openings, and only 6,000,000 unemployed people looking for work, the odds against ANY employer finding the ‘right’ candidate are very high.
Recruiters, on the other hand, are especially skilled in identifying potential job candidates, and primarily contact persons who aren’t actually even actively looking for a new position. They tap into the “passive candidate” market – people who are shrewd businessmen and skilled professionals, who know that their value is something companies will pay for, but are too busy and too happy to be looking for other positions. The thought of reading job ads would probably rarely even enter their minds.
Typical data show that a candidate who interviews for, and successfully receives a job offer, will receive a 10% pay hike. Doing so potentially increases his/her salary by more than a year’s worth of raises at a standard job. For that reason, candidates who smartly change jobs from time-to-time tend to earn higher overall salaries than those who “stay put”, and potentially get taken for granted by their employer. The converse is also true: those who change jobs every year, or very frequently, tend to be viewed askance by hiring managers who perceive them to be ‘flight risks’.
The Client who secures or retains the services of a skilled Headhunter/Recruiter is also paying for the service of ‘screening out’ undesirable candidates who might have bad reputations for ‘job-hopping’, bad references, or just ‘red flags’ suggesting problematic behavior or issues. Headhunters perform far more than a service of merely finding ‘warm bodies’ for a job opening — they also screen, qualify, identify and recruit those who wouldn’t otherwise be interested or perhaps even hear about an opening.
Cost is also an important additional factor in justifying the expense of a professional recruiter. For one, open positions cost companies money. Without having a specific role filled, the cost is at least whatever the monthly salary is multiplied by the number of months the position is open. For this reason, it was decided early on in the beginning of Executive Search as a field that a fee for three months of work by the recruiter (to fill the position, based on typical length of searches) was easily fair. Other estimates of the cost of an open position range from 1.5x to 3x the salary.
Clearly, a Headhunter who works quickly and effectively to provide complete hiring solutions within an even shorter time-frame (say, one month, which is often the case) is saving the Client even more, and can often accomplish this because of superior industry knowledge, as well as superior search technique, and superior communication skills.
A Headhunter with Industry knowledge can be especially valuable to a company trying to hire people in other ways, too. For example, I once placed an individual with over 200 patents whose contributions to his next company took them from $100,000,000 per year revenues into $1 billion per year revenues, within 5 years. My research to find this person was critical, and involved combing thru many hundreds of patents, as well as interviewing many people. So, my well-earned fee (in six figures) merely reflected the depth of work I had done, and was perhaps less compensation than I actually deserved. Skilled Recruiters clearly offer an essential “value-added” benefit that cannot be underestimated.
Nonetheless, my Philosophy is that I should offer discounted rates for those who retain me as their recruiter. “Retained” search typically means that the client-company pays a portion of the projected fee (about one-third) upfront… but that will be another discussion.