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Contingency vs. Retained Recruitment: Which is Better?
Updated: December 2016
If you're looking for new staff for your business, then there's a question that may well be on your mind. What is the difference between contingency recruitment and retained recruitment, and which is better for you?
The answer is surprisingly simple - so let us explain ...
To someone who isn't from a recruitment background, the terms 'contingency' and 'retained' probably mean very little. Today, we're going to cut through the jargon and explain not only what they mean, but also the pros and cons that would make you choose one over the other.
First, let's have a look at why you would want to use an agency over other methods of recruitment:
Why use a recruitment agency in the first place?
Recently, we published an article that looked at the methods used by candidates to find employment - with some interesting results. Our survey indicated that over 50% of candidates used a recruitment agency as their preferred method when looking for a job.
Agency usage was also shown to be on the rise - up 10% since 2013 - while job board use appeared to drop by 27% in the same period.
It seems that candidates are discovering what a quality recruitment agency can do for them - but what can they do for you, the employer?
Agency Central provides a service that will make this process easy.
Well, as you know, recruitment can be an arduous task - and here the bulk of the heavy lifting will be done for you. Just imagine:
No more paper avalanches as that stack of CVs you've been trying to get chance to read through for the past week slowly slides down the back of your desk ...
No more getting excited over a seemingly great candidate who then goes off the radar for no apparent reason.
The list goes on. It’s just easier to get someone else to handle all the donkey work for you.
Then there's the fact that for many smaller companies, dedicated HR personnel are simply out of reach. This causes two big hiring problems:
Firstly, you’re going to have to take someone away from their normal work while a candidate is sourced - lowering productivity.
Secondly, you’re reliant on your hiring manager to select a new member of your team. This is a hit and miss approach - because not everyone has the experience to tell a good candidate from a bad one.
Working with a recruitment agency means that not only do you suddenly have an extra pair of hands to sift through all those applications, but also that those hands belong to someone who's done it all before.
When you do decide to take someone to interview, you'll be briefed by someone who's probably spoken to the candidate in person already - so there'll be no nasty surprises.
Recruitment agencies aren't for everyone, but if you like the idea of saving time and effort, while improving the quality of the hires you make, then an agency is well worth a go.
What is contingency recruitment?
You’re probably familiar with contingency planning - but that's not what we're discussing here.
This time the contingency is that the recruiter doesn't get paid by you unless you choose to employ a candidate that they put forward.
The power here is very much in the hands of you - the employer - and you often see multiple recruitment agencies trying to fill a role all at once. This might even involve competing against an employer's internal HR department, who are also searching for a candidate.
As you can imagine, this can all get very competitive, very quickly.
Contingency recruitment is simple. If the recruiter does not supply the 'winning' candidate, then they don’t get paid.
Generally speaking, contingency recruitment tends to be the more mass-market of the two approaches. The role you'd be filling could be anything - Cleaner, Manager, Candlestick Maker, the list goes on ...
It's not limited to generic positions either - and you'll often find that specialised roles in industries like IT and Engineering are filled this way. There are even recruitment agencies that specialise in certain industries - with consultants often having professional experience in the roles they recruit for.
Benefits of contingency recruitment
The benefits of contingency recruitment for the employer are fairly obvious - because you're in charge of the whole process.
If a recruitment agency operating on contingency sends you candidates that you don't feel are suitable, you simply don't have to interview them - or pay a fee. This means that it's in the agency's interest to send you the best candidates they can find - and as quickly as possible.
Contingency recruitment therefore makes an excellent choice when a candidate is required quickly - or if you have multiple positions to fill ...
The candidates an agency puts forward will fit the bill, and will be capable of doing the job you need them to do.
Many recruitment agencies also offer services such as psychometric testing - which can help to ensure that a candidate will fit in with the particular culture of your organisation.
Downsides of contingency recruitment
As for the potential downsides of contingency recruitment - well just consider the benefits and then put yourself in the recruiter's shoes ...
If you were a recruiter and you got an inkling that there were multiple firms working on a job, or that you were up against an internal HR team, would you bother expending resources on that project?
Instead, you’d probably put your efforts into sourcing a top-quality candidate for a job you know you would end up getting paid for.
This means that it pays to limit the number of recruiters working on a contingency contract - and to make the fact that you have done this clear to them. This way, you get less people working on the job, but they will all have a fair chance of success.
Pricing structure of contingency recruitment
As we mention above, contingency recruitment is simple. If the recruiter does not supply the 'winning' candidate, then they don’t get paid.
Aside from a few exceptions, in the UK, it is illegal for a recruitment agency to charge a fee to a candidate because of two pieces of legislation:
This means that the agency won’t make any money if they are unsuccessful in filling your vacancy.
The fee you pay to a contingency recruiter will be a percentage of the candidate's starting annual salary, and varies by agency.
This fee is typically anything between 15-30% of salary (although this varies) - and will reflect factors including the recruiter's experience level and reputation.
What is retained recruitment?
Retained recruitment is the opposite of contingency recruitment. Here, you’re paying to 'retain' a recruiter to your cause - guaranteeing them exclusivity and an income from the job once they find a suitable candidate.
While you will be giving up some control over the process here, that's not necessarily a bad thing ...
In this business, a recruiter’s reputation is everything.
Retained recruitment jobs tend to take place almost exclusively at the top-end of the market - where salaries are high, and suitable candidates are scarce.
Often known by other names like ‘headhunting’, ‘search and selection’, or ‘executive search’, retained recruitment is associated with hard to fill job roles like Art Director, Head Chef, Chief Engineer, and Chief Executive.
Benefits of retained recruitment
As we saw above, exclusivity will get a recruiter to work much harder for your cause. They are motivated to do this because they stand a fair chance of making money from it - and who could blame them?
Because retained recruitment guarantees exclusivity, you know that the consultant doing it is going to exercise consideration and due diligence in sourcing you candidates.
This is a boutique approach, and suits the top-end of the recruitment market, where potential candidates aren’t always looking for a new job.
In the rarefied atmosphere of big salaries, bigger benefits, and massive levels of responsibility, discretion is essential - and headhunters will go out of their way to ensure that confidentiality is maintained.
This type of recruiter maintains a large, informal network - and this is what could make a headhunter invaluable to your business.
A headhunter will generally provide you with dossiers on four or five candidates who have been thoroughly researched and approached on your behalf. All that’s left for you to do is carry out the final interviews.
Downsides of retained recruitment
The main downside of retained recruitment when compared to a contingency approach, is that you are placing much more trust and investing more resources in the recruiter.
As you will see below, the cost structure of a retained assignment is different to the contingency method - and it means that a recruiter will be paid a percentage of the final fee before a candidate has been presented to you.
While retained recruitment is a much slower process than contingency recruitment, the reason for this should be obvious. With a retained approach, the candidates you meet should be perfectly suited to the complex job role in question - and this takes time for a recruiter to set up.
Pricing structure of retained recruitment
Headhunting has a very different pricing structure to contingency recruitment.
The high-end nature of this business means that recruiters need to be sure they will be paid a fee for their efforts.
When the fee is paid will vary between different agencies - but there will often be an ‘up-front’ charge to set the ball rolling. Sometimes a firm will request a second installment upon your receipt of their shortlist of candidates - and then there will be a final fee paid once your chosen candidate has been employed.
The final cost of using a recruitment agency on a retained basis is a percentage of the starting annual salary the candidate will be paid - and this percentage is variable - up to around 50%.
The percentage price tends to be slightly higher in retained recruitment - and this can vary dramatically depending on the role and agency concerned. Do remember that in this business, a recruiter’s reputation should precede them.
Which recruitment method should you choose - contingency or retained?
Given that contingency and retained recruitment are two very different beasts, how do you decide which one is right for your vacancy?
At the top and bottom of the salary spectrum, the answer is simple. For lower-paid job roles, contingency recruitment will usually be best - whereas for the highest paid jobs, a retained headhunter will often deliver superior results.
This has more to do with supply and demand than anything else. Contingency recruitment works well for finding good candidates in the crowded labour market at the bottom of the salary spectrum. It works so well in fact, that a retained approach would be overkill.
Agency Central exists to help employers find the recruitment agency that's perfect for their needs.
But try using contingency recruitment at the top end of the market, where qualified candidates are scarce, and you may begin to run into problems - especially if you are assigning the task to more than one firm.
When you are recruiting towards the middle of the salary spectrum however, this difference is not so clear-cut. While some roles at this level are relatively easy to fill - requiring skills that are widespread, others are not, and require a candidate with specialist experience.
At this point, there are a number of options available to you as an employer:
You could choose the contingency approach - which is likely to fill the role quickly and with a good candidate, but where speed is valued over perfection.
You could go with a retained / headhunting approach - which takes longer and is potentially more expensive, but should return a great candidate.
Or, you could choose to go with a specialist recruiter for that particular sector or job role through either the contingency or retained route.
Specialist recruiters come in many forms - with some firms dedicating themselves to a single market sector like education or engineering.
Often you will find that a large recruitment agency has an arm which deals solely with a certain specialism - which can be beneficial if you need the reach that a bigger operation can provide.
Finally, there are smaller firms with multiple specialisms - who often excel in the breadth of local knowledge they can provide to your cause.
The type of firm you select for this task is up to you, but Agency Central is a free and easy directory of recruitment agencies. We can save you a lot of time and effort finding the right people to work with.
How to find recruitment agencies using Agency Central's free online directory
Because the market for retained recruitment is high-end (and therefore small), you’ll find that the majority of the market is made up of contingency recruitment services.
When you're looking for a specific type of recruitment agency, it can be difficult - especially if you’re trying to fill a niche role. This is exactly the problem that Agency Central was set up to solve.
Agency Central exists to help employers find the agency that's perfect for their needs - whether that's due to their location, specialism, or other expertise.
How to find a contingency recruitment agency
So, say that you were looking for recruitment agencies in London - you'd go to our homepage, fill in the details of what you're looking for, and get taken to the London recruitment agencies page. This page gives you a list of agencies that recruit in the area and industry you selected.
Likewise, if you wanted to recruit a marketing manager, you’d make your search on the homepage, and be taken to a customised list of results based on that specialism in your location. Alternatively, you could click on the link to browse recruitment agencies based on the industries they work in.
How to find a retained recruiter or headhunter
If you were looking to fill a senior vacancy, and wanted to deal with a recruiter in a retained capacity, then the process would be very similar.
This time however, when you went to our homepage, you'd need to select 'Headhunting' under the 'Industry' category. Next, you would select the industry sub-sector you were interested in recruiting in. Pharmaceuticals industry headhunters for instance, have their own page.
Once you had filled in these details, you would simply fill out the other fields, and our system would take you to a page listing all companies offering headhunting in your industry and area.
Choosing the right recruitment agency to work with can make the difference when you’re looking for the perfect candidate, so it pays to make a good decision.
Written by Matt Atkinson