The Retainer Agreement

by | March 31, 2009

The purpose of this article is to provide a brief overview of the retainer agreement and some benefits and liabilities from the perspective of the search consultant, the owner/manager of the search firm, and the employer/hiring company. The general philosophy of the author is that hiring companies are better served with many different search approaches that match the needs of the hiring situation - One size does NOT fit all! The retained search is one option that helps complete the array of services.

BASIC TERMS OF A RETAINER

A generally accepted definition of a retained search is: "The employer pays all or a portion of the estimated employment fee prior to the commencement of the search and the fees paid are not contingent upon a hire but are paid as a claim upon the recruiter's services or as a right to get recruiter services in a priority manner." Most traditional agreements require payment of one third the estimated fees upon commencement of the search; one third upon presentation of the initial group of qualified candidates; and the final third once the position is filled or at the end of a specified time period. The entire fee is considered earned regardless of the source of the candidate (including internal promotion). Usually expenses associated with conducting the search are also invoiced with the final payment including advertising, travel expenses for interviewing, and prorated administrative costs such as postage, telephone, faxes and copying.

By varying the terms of a standard business retainer agreement, the author is able to successfully blend the agreement into a more performance-based business approach. This performance-based retainer agreement includes the following terms: the first payment of one third of the estimated fee is a retainer which is required to initiate the search; the second payment, equal to the first, is contingent upon the client company interviewing one or more candidates; the final payment, which is adjusted to reflect the actual compensation plan accepted, is contingent upon a candidate being hired who was referred by the search party engaged. Any expenses to be billed to the client company require pre-approval and are submitted for reimbursement in a timely fashion. This type of agreement could be called the "Container Agreement" (derived from CONtingency and reTAINER) because a portion of the fee is retained regardless of the outcome of the search and a portion is contingent upon interviews and a hire occurring.~CRITERIA FOR SELECTION

Your decision to recommend and the client's decision to accept a retained search over the other options is difficult. Most employers would agree the following factors require a retainer or some type of alternate search strategy:

  • A limited candidate pool because highly specialized experience is required.
  • Traditional recruiting resources have failed (word-of-mouth, advertising, "personnel agencies," etc.).
  • Very specific credentials, certification or schooling is mandatory.
  • The hiring company has potentially negative situations (losing money, vulnerable for merger or acquisition, high turnover rate, low industry standing, recent reorganization or acquisition, etc.).
  • The compensation range set for the position is below industry average and special help is needed in selling the opportunity.
  • The company has already interviewed a number of candidates and had some "turndowns" or "no interest in the position" expressed.

However, these very factors are the same ones that may cause you to fail. Retained searches need a 95% or better probability of a successful hire occurring. Nothing will get you and your firm out if the retainer business faster than failing to assure the hire occurs. Some factors which do not necessarily increase the probability of an unsuccessful search but do indicate the need for a retainer:

  • The company has no internal personnel capable of handling the special requirements for the search.
  • The critical nature of the position to be filled requires a full-time expert consultant to handle all facets of finding and evaluating the candidate(s) and negotiating the hiring package.
  • The employer has a highly confidential situation (e.g., replacement of key employee, entering a new market, developing a new product or process, etc.).
  • The employer's needs go beyond the traditional contingency search services:
    • Analysis of the position to determine what the prerequisite skills and experiences really are.
    • Analysis of the industry to determine if such skills and experiences are available.
    • A salary survey of all contacted candidates to adjust the client firm's policies.
    • A need for written updates, summaries or other justifications for upper management or the owners.
~BENEFITS AND LIABILITIES

The employer is usually the fastest to determine the benefits of a retained search. When an employer encounters some of the factors listed above, we need only to present a "fair and equitable" agreement and point out the obvious: "only a concentrated, prioritized and exclusive search for the 'right' person is going to meet your needs." The employer's only liability is loss of time and money if you fail. If you have the capabilities to perform and gain the confidence of the employer, then a retainer is right for the employer.

Most owners/managers are primarily interested in creating and maintaining a high volume and profitable revenue stream while increasing the probability of repeat business through quality service. The retainer agreement will increase profitability by improving "cash flow" and, when successful, improving opportunity for repeat business at minimal marketing cost. The very nature of a retainer agreement allows access to higher level decision makers within the employer's organization and a commitment level that only an exclusive contract enjoys. Most owners/managers would agree that their senior people can deliver very high quality service when they have a high level of commitment and access. The major liability for the owner/manager is low or decreased volume. Since a retainer does require exclusive time and effort by a senior search consultant, a decrease in billable results usually occurs until the firm and its senior staff have learned how to effectively integrate retainers with other services and use support services such as research assistants or contract recruiters.

A FINAL CAVEAT

Retainers do not necessarily fit with nor are required for a search firm's success. If you want to consider a retainer option, you will need to thoroughly analyze your firm's business philosophy, capabilities, and interest or desire to invest in a new approach. As with all new business ventures, you will need extra time and money to make it succeed.~Just as we encourage our employers and candidates to avail themselves of all opportunities to succeed, we also need to creatively develop options, which will allow up to seize all our opportunities.

James O. Cox has been a Certified Personnel Consultant (CPC is a certification of the National Association of Personnel Services) since 1985, in the third-party search and placement industry since 1983, and a manager of contingency search profit centers (1985-91). He has successfully integrated a wide range of services for the hiring companies including contingency and retained searches.

Filed Under: Job Search


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