Pipelining Talent: An Evolution in Executive Search

Feb 27, 2009

The Internet and falling prices of technology has had a dramatic impact on the executive search process.

Today, access to people, companies, and market information is available to almost anyone with Internet access. Resources such as LinkedIn, Hoover’s, Zoominfo, TheLadders, SixFigureJobs, and others make identifying passive candidates much easier. The relatively low cost of technology allows recruiters, clients, and candidates to store, retrieve, and present information much faster than ever before.

With all of these important components of executive search evolving, why haven’t the results improved?

Today, executive search firms continue to charge about 30-33% of the successful candidate’s first-year compensation. The average time-to-completion remains about the same, about 120 days. And the success rate really hasn’t changed much either. While boutiques generally have higher completion rates, the large search firms remain at about 65%.

In fact, many of the larger firms that claim a higher rate have simply changed the criteria for successful completion in order to improve their statistical results. In these cases, searches that did not result in the hiring of a candidate presented by the search firm may be considered successful completions.

So if the process has changed but the results haven’t, then why haven’t clients made any headway changing the search industry? Fluctuating market conditions (supply/demand) shift the leverage between recruiter and client, but without a proven, attractive alternative clients are never in a position of strength. Certainly clients have the ability to push prices down by 2-3%, but in the highly profitable world of executive search, this is merely a “rounding error.”

In an effort to secure more business, executive recruiters often propose discounts in exchange for multiple projects (and ongoing retainers), but without a major change in cost and risk, most clients prefer the transaction. “I’ll call you when I need you – in the meantime, go away.”

Pipelining is a service that is gaining traction in corners of the executive search industry. Pipelining is an ongoing effort to identify, assess and present highly qualified talent to clients for multiple positions within the company. In fact, some of these positions may not be vacant, but instead may have succession gaps.

Filling these gaps with external options provide security and stability in the succession plan while also providing intelligence to the client organization. Clients can direct the recruiter team to gather compensation information, compare talent among competitors, identify new opportunities and even build partnerships. Often, executive introductions lead to results no one expected at the onset, such as M&A, best-practice sharing and more.

From the recruiter’s perspective, pipelining can be attractive. It is research-powered so the execution cost is relatively low. Recruiters can manage multiple projects, only getting involved with candidates pre-qualified by researchers. With a good electronic delivery system, recruiters will embed a sustainable link in the client processes, resulting in more work and a long-term partnership. However, none of this can be successful unless recruiters can offer it as a substantially lower risk to the client.

The recruiter must shift the purpose of the engagement away from high-priced transactions to long-term stability. The recruiter must accept long-term security in exchange for a fee not based on candidate compensation, but on the size of your team and the time your team dedicates to the client. Give control of you and your team to the client, allowing them to direct you. Recruiters simply adjust the price up and down, depending on the resources needed. This will result in your firm becoming an integrated extension of the client company.

In addition to the broad application of services within the client company, recruiters can add a reasonable success fee for hires. However, don’t overstep by trying to extract a fee comparable to traditional executive search. The success fee should be a flat amount used to reward you and your team for good work, but not dramatically increase the total paid by your clients. It’s designed to build security through a partnership. It’s not designed to be a windfall.

Example: A firm that charges $15,000 per month can expect at least $180,000 per year. Add a success fee of just $10,000/hire and with just four hires, your firm is collecting $220,000. From the client’s prospective those four hires average just $55,000 each; eight hires drops the cost per hire to just $37,500 per hire. That’s one-half the minimum fee of the larger firms. Operating at a 65% profit rate, the recruiter will still profit more than $16,000/mo. for each client. The result is a win-win for both clients (low risk, low price) and recruiters (advisory/partnership, security).

With the availability of this technology and subcontracted research support, any size firm can compete – even sole proprietorships.