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Nov 24, 2022 Adam Manson

Why a retainer agreement is the best way to work with executive search

Recruitment is broken. There you go. We said it. Recruiters today have reputations akin to car salesmen in the 80s—shifty men in leather jackets flogging anything to enrich themselves at the customer’s expense. And you know what? They are half right. 

The recruitment industry is the white-collar version of battery-farming chickens. There is little incentive to do things properly, with care, ensuring that candidates are looked after and that the best ones are shortlisted for the job. And this is even true in specialist areas such as digital transformation and technology sales.

What’s the problem with recruiters?

The problem lies in the percentages. If a company wants to hire one candidate, they outsource the task to around five recruitment agencies. Each agency knows that they stand roughly a 20% chance of finding the winning candidate—not the perfect candidate, but the winning candidate. 

With only a one-in-five chance of success, executive search agencies have no incentive to find the ideal candidate. So they rely on cold search techniques only targeted at active candidates—workers actively seeking new employment opportunities. That's not to say you can't find great candidates who are looking for jobs, but the best talent is often likely to be happily employed and not interested in changing companies.

Cold techniques involve posting a job on LinkedIn or similar internet-based job boards and letting the candidate come to you. Top people working at world-class tech companies are unlikely to be monitoring job boards. Even if they are, the method is not as engaging or inviting as it is to be personally headhunted and recognised as a prime candidate.

Also, since executive search agencies know that they are statistically unlikely to provide the winning candidate, they are incentivised to act as quickly as possible to improve the odds. Often the agency that receives the commission is the one that has acted the quickest. While everyone appreciates speed and efficiency, it is not the best way to find the right candidate. Time becomes the enemy; the longer it takes any/all of the five to find a good candidate, the more they will assume one of the others is on the cusp, so they will put less effort in.

How should executive search agencies attract top talent?

The answer to this question is simple: don’t be governed by time alone. 

Instead of allowing the process to be limited by the whims of advert respondents, agencies should recruit passive candidates who are not necessarily looking for new work. This is more difficult, longer-term, and requires a much more significant investment from the executive search agency. 

There are two ways of finding great passive candidates. 

1. Proactively looking for candidates

The first method is to research and actively look for candidates. The only way to do this is for consultants to have expertise in the target market. Consultants recruiting in the tech industry don’t need to have advanced knowledge of Javascript, but they do need to understand the industry and the work. Otherwise, it’s very difficult to target the best candidates and to have meaningful conversations with them during the recruitment process.

Once consultants have identified potential candidates, they need to approach them and sell your company. Remember, these people are not looking for a new job; attracting and selling the offer is crucial. The task might be easier if you are a well-established company, but convincing candidates who are comfortable where they are can be a challenge for most companies and especially for those who are expanding into a new overseas market.  

Selling a candidate your company requires time and effort to understand how it operates, the market, and your competitors. Approaching candidates without this knowledge would be foolish. Knowing the right benefits package to include is key to building trust and the potential hire taking the process seriously. Consultants are unlikely to go to this time or effort if they have a slim chance of providing the winning candidate.

2. Rely on an extensive network of known contacts

The relationships an executive search agency has with candidates is a valuable indication of how good that agency is. Too many agencies use candidates when they need them and then dump them when they don't. This stems from the percentage problem described above. A good agency nurtures relationships with talent, whether they are hired for the job or not. In this way, they have an excellent pool of candidates they can contact at any given time.

Instead of the machine gun approach to hiring talent, actively cultivating long-term relationships has a powerful advantage. When a company commissions an agency to find talent, ideally, it should already have several candidates in mind. 

Knowing candidates personally is the best way to present someone with shared values and vision to the hiring company. You are unlikely to recommend a doctor or dentist you don't know—so why would you recommend a candidate that you only know from a LinkedIn profile? Of course, recruiters can't know everyone out there. But if their mission is to discover talent and build relationships regularly, they will likely get better results. 

How does a retainer agreement fix the problem?

First, what is a retainer agreement? A retainer agreement (in the context of executive search) is an exclusivity agreement between the company needing to hire talent and the executive search firm. Instead of thinly spreading the task of finding the right hires over five agencies, one firm is contracted to be the sole recruiter. 

A percentage of the fee is paid at the beginning of the relationship to ensure that the company is serious about the project, and the rest is paid at the end when the candidates are hired. A retainer agreement guarantees a result for a pre-agreed price. 

But perhaps you still have objections? 

Yes. Just one firm? Surely five different companies looking is better than one?

No. Because of the percentages problem described above. If one agency is solely responsible for providing candidates, in crude economic terms, none get paid until they deliver. This makes them accountable, and it's their reputation on the line. If the arrangement doesn't work, you never return to that recruiter—so they are heavily incentivised to do a good job. 

Ok, but what about the upfront fee? Paying for something before I have received anything? I don’t like the sound of that.

It is a big responsibility for the agency—if they don't deliver, they don't get paid the remaining fee. They have to be wholly committed but also ready for the long term. It's not always easy to recruit top talent, and persuading them to leave their job is often a challenging sell. The upfront fee shows the agency that the employer is committed to the hiring process and will not simply stop trying if the right candidate does not appear straight away. 

Fine, but it sounds like this could take forever. We want someone yesterday. 

Sure, the best result for everyone would be for the recruiter to find the right candidate straight away: they earn the commission quickly, and the company has its employee. But the emphasis should be on finding the right candidate, not filling the position quickly. Of course, no one wants a candidate to be found next year, but that, once again, is another benefit of the retainer. 

Five recruiters are incentivised to find someone quickly, or they forget about it since putting extra effort in for a 20% chance of success is not good business sense. But a retainer agreement ensures that the executive search agency is motivated to find candidates as quickly as possible. They don't get paid until they do—and are contractually obligated to do so. 

Right, but the service must cost a fortune. 

No. You are likely to pay less in the long run for a better, guaranteed service. The right candidate will align with the company’s values and culture; therefore, retention is likely higher than with other candidates. The result is less churn and less recruiter commission for new hires. Fees for executive search consultants can be up to 30% of the new hire’s salary, so you want to pay this as infrequently as possible.


Executive search firms might not have the best reputation, but that's because they often lack the incentives to change their behaviour and provide their clients with the best candidates. Their insouciant approach negatively impacts both firms looking to hire and talent looking for a job. Recruiters who have a retainer agreement with their clients are guaranteed to deliver. It makes them accountable and changes the approach to finding candidates. Everyone in the process should build long, meaningful relationships to achieve the best results—and that's possible with a retainer model. 

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Published by Adam Manson November 24, 2022

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