Guide
Executive search fee structure: how the invoice is actually built
Updated
Two firms quoting the same percentage can invoice materially different sums. The difference is in the definitions, not the headline rate.
The three parts of a search fee
- The base
- The figure the percentage is applied to. This is where most of the variance lives. Base salary alone, salary plus guaranteed bonus, or full first-year total compensation including target bonus, car allowance, pension and the first tranche of any equity award are all used, and they can differ by a wide margin on the same appointment.
- The percentage
- The headline rate. Convention for retained work is around a third of the first-year package and for contingency the mid-twenties to mid-thirties percent, but these are market habits rather than rules and both are routinely negotiated, particularly on multiple mandates.
- The staging
- When it falls due. Retained work is conventionally billed in three instalments across the search. Contingency falls due on appointment. Container arrangements sit between the two.
Define the base before you discuss the percentage
This is the single most useful negotiating move available to a client, and it is entirely reasonable. Ask for the fee to be calculated on a defined base, set out in the agreement, with any variable element either excluded or capped at target rather than at maximum. A firm quoting a lower percentage on total compensation including uncapped bonus may well invoice more than a firm quoting a higher percentage on base salary. Compare the models, not the headline.
The clauses that change the number
- Reconciliation on actual package. If the fee is estimated on an indicative package and reconciled against the agreed package on appointment, agree how, and whether it can only move upward.
- Expenses. Ask whether they are included, capped, or charged at cost with prior approval above a threshold. Advertising, psychometric assessment and candidate travel are the usual items.
- Assessment. Formal assessment, psychometrics and referencing may be included or separately priced. Neither is wrong; it needs to be visible.
- Third party costs. Background screening and qualification verification are often passed through.
- Off-limits. The period during which the firm will not approach your employees. It has no line on the invoice and is one of the more valuable terms in the agreement.
Guarantees and rebates
Most search agreements offer some protection if the appointment ends early. The two shapes are a free replacement search and a sliding scale rebate of the fee, and the differences that matter are the length of the period, whether it runs from start date or acceptance, whether resignation as well as dismissal is covered, and whether the protection survives a redundancy or a change of strategy on the client's side. A generous headline guarantee with tight exclusions is worth less than a shorter one that actually bites. Ask for the exclusions in writing.
None of this is set by statute. The Employment Agencies Act 1973 (legislation.gov.uk) and the Conduct Regulations 2003 (legislation.gov.uk) govern how agencies may behave, including the prohibition on charging work-seekers, but they do not set fee levels between an agency and a hiring client. Everything above is negotiable.