Executive Search Fees: How They Work and What to Budget

Executive search fees are simple in principle: the firm charges a share of the placed executive's compensation. In practice, quotes that look the same can differ a lot once you look at what the percentage applies to, when it's paid, what sits on top of it and what happens if the hire doesn't last. Here's how the models work, and what to ask.

The two main models

Retained search

In a retained search, you engage one firm exclusively and pay it in stages as the work progresses, whether or not you ultimately hire one of its candidates. The total is commonly about a third of the executive's first-year cash compensation.

A typical schedule splits the fee into three payments: one when the search begins, one partway through, often at an agreed date or when a slate of qualified candidates is presented, and one when the candidate accepts. Some firms set a minimum fee for smaller roles.

Retained search is the norm for senior and hard-to-fill roles because the firm can commit a dedicated team to mapping the whole market, approaching people who aren't looking and assessing them in depth.

Contingency search

In a contingency search, you pay only when you hire a candidate the firm introduced, usually as a share of first-year base salary. Several firms may work the same role at once, and the first to produce the hire is paid.

Contingency works best where there's a broad pool of active candidates. For scarce and senior roles, the economics push firms toward speed and volume rather than depth, and the same candidate may be presented by several firms.

Hybrid models

Some firms offer a middle ground, often called container or engaged search: a smaller upfront payment to secure the firm's commitment, with the balance due on placement.

What the fee is calculated on

The percentage matters less than the base it applies to. Most retained firms calculate the fee on first-year total cash compensation: base salary plus the target bonus, and often any signing bonus. Some include other guaranteed cash. Equity is usually excluded.

If the final package differs from the estimate used at the start, the fee is usually adjusted when the candidate accepts. Ask for the definition in writing.

A worked example

FloodGate's MedTech Compensation Guide puts the average VP of Sales at a $235,000 base and $385,000 in total compensation. For a hire at that average:

• Fee base: $385,000 first-year cash
• Retained fee at one-third: about $128,000, paid in three stages
• Plus expenses, as agreed

The same percentage applied to base salary alone would be about $78,000, which is why comparing percentages without comparing the fee base can mislead.

Costs on top of the fee

Ask what the fee covers and what's billed separately. Common extras include:

• Expenses: candidate and consultant travel, and sometimes research and administrative costs. Some large firms bill these as a set percentage of the fee; Heidrick & Struggles, for example, describes its approach in its annual report.
• Assessments: formal leadership assessments, if you add them.
• Background and credential checks.

Asking for an expense cap, or an all-inclusive fee, avoids surprises.

Guarantees

Most retained firms will run a replacement search if a placed executive leaves within a set period, typically for the professional fee only, with expenses still due. Terms vary on the length of the period and on exclusions such as layoffs, reorganizations or termination for cause. Read them before you compare quotes.

How to compare quotes fairly

• Same fee base? Total cash compensation, base only, or something in between.
• Same payment schedule? When each payment is due, and what triggers it.
• Same scope? How many candidates, what assessment and what reporting.
• Same expenses? Capped, percentage-based or billed as incurred.
• Same guarantee? Length, terms and exclusions.
• Same team? Who will actually do the work.

Is the fee worth it?

The honest answer depends on the cost of the vacancy and the cost of getting the hire wrong. For a role that carries revenue, a regulatory submission or a team, an empty seat costs money every week, and a mis-hire costs the original fee, severance, lost momentum and a second search. A rigorous search costs more than a fast one, and it usually costs far less than doing it twice. For a fuller breakdown, read what recruiting really costs.

FloodGate Medical is a retained search firm specializing exclusively in MedTech. See how a search works.