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Experts and finance chiefs supply tips about paying recruiters, retaining them, and choosing between the boutiques and the big names.
Lisa Yoon, CFO.com | US
September 16, 2005
The tasks of putting together and restocking top-drawer finance teams can present busy CFOs with a daunting question: How much time and effort can I put into picking talent?
The answer most often must be an unhappily expressed version of "not much." While hiring excellent subordinates is obviously the most basic task of a finance chief, many don't have the time to spend on the task. Thus, it ends up being delegated to executive-recruitment firms. But the story doesn't — or shouldn't — end there, experts suggest. By expending some effort in hiring a headhunter, senior finance executives can save themselves the considerable grief and expense that often arises when hires go awry. Says Wine.com CFO John Belchers: "The cost of making a [hiring] mistake is a lot more than the cost of a recruiter."
To be sure, headhunters don't come cheap. The cost of retaining a search firm can equal about 30 percent of a new hire's signing bonus, moving expenses, and first-year cash salary combined, says CFO Stephen Wasko of privately held biotech Nanosphere Inc., which had sales of $3.5 million last year. Similarly, Wine.com, with $32 million in sales, pays out 30 percent to 40 percent of such costs to an executive recruiter. Both finance chiefs, however, report that their companies received good success in their finance hires for their money, including a controller for Wine.com.
When they work with recruiters, senior managers have a choice of two kinds of relationships: contingency searches and retained ones. In contingency searches, the client company pays recruiters only as slots are filled. The headhunter often competes, in such circumstances, with an employer's other search channels: other recruiters, ads placed by the employer, and internal applicants.
In a retained search, on the other hand, the recruiter signs on with the company as the latter's main partner for a specific search assignment. It's the search method companies reserve for senior executives. The search firm quotes a fee per assignment. Unlike contingency search consultants, who are paid in full at the point of the employee's hire, retained search firms collect three payments throughout the search process, the first of which is usually non-refundable. Companies also cover retained recruiters' expenses, such as travel and phone bills.
The retained search is often the biggest item in the total cost of hiring an executive. But the investment usually comes with guarantees. For example, if the employee unexpectedly resigns or is terminated before the end of a predetermined guarantee period, the search firm will often repeat the entire search process for no additional fee. What's more, while contingency recruiters tend to market any remotely qualified job seeker for a given position, retained headhunters provide customized searches for jobs with exact specifications.
Regardless of the kind of search a finance chief is after, it may take time to find the right recruiter. The index of Kennedy Information's annual Directory of Executive Recruiters lists well over 650 executive-search firms that serve the finance function, including searches for professionals in special areas such as mergers and acquisitions and tax. Zeroing in on the one that best meets a particular company's needs can sometimes be a neat trick.
Most CFOs leave the job of finding prospective search firms to the human resources department for the more general finance positions, such as controller. But when looking for specialists, such as vice president of tax, many turn to word-of-mouth recommendations among fellow CFOs and industry experts.
That's how CFO Robert Doyle settled on Spencer Stuart in a search for a chief information officer search for Coinmach Service Corp., a provider of coin-operated laundry services which took in $539 million in revenues for the fiscal year ended March 31. After interviewing several prospective search firms, Doyle checked references independently — "not the ones they provided," he stresses. He compared notes with industry colleagues who had experience with similar searches. "The name Spencer Stuart just kept coming up," says Doyle.
He believes he made the right choice. What the firm had going for it was an ability to evaluate personalities to find a candidate who would complement the team at Coinmach. "I wanted to hire someone that fit into the organization," says Doyle. Representatives of the recruiter visited the Plainview, New York, headquarters several times to get to know the company and its culture even before proposing candidates. Ultimately, Spencer Stuart presented the candidate Coinmach hired, which Doyle considers one of the best hires the company has made.
Although it seems like an obvious move to pick a big-name search firm like Spencer Stuart to help fill a key position, that may not be so. "The best [recruiters] I've worked with have not been big names," notes Wine.com's Belchers. "Small and boutique-y is sometimes better."
Nanosphere's Wasko agrees: "All a big recruiting organization brings is more contacts and [therefore] probably a somewhat bigger resume pool." While such an advantage can be helpful in a search, the CFO says, he's skeptical that it's enough to outweigh the benefits of a smaller firm.
A boutique can deliver more personalized service because of a lighter volume in assignments, some feel. Belchers says the search consultant he works with checks in with him regularly, even when there isn't a search going on. That gives the consultant an understanding of the company that helps him present the most appropriate candidates when the need arises.
Ultimately, though, users agree, the quality of the search doesn't hinge on the size or reputation of the search firm but on the efforts of the individual recruiter. While Doyle worked with Spencer Stuart, a major-league search firm, he advises: "Make sure the people you interview are the specific recruiters on the search." When they do such interviews, experts say, they should look for certain qualities in the recruiter:
Industry experience. You want a search partner who understands your company and your business and has a comprehensive pool of contacts.
Original thinking. Belchers notes that he doesn't want a recruiter who will bring him only the usual suspects from within his company's industry; he likes a recruiter with ideas for fresh prospects. Fresh ideas and an address book to match are, after all, largely what you're paying a headhunter for.
Good references. These should be checked out even if the prospective search firm is a big gun. "Don't just rely on reputation," warns Jonathan Schiff, who runs the Institute for Finance Training and Development. Have the recruiters really completed the searches they claim, or are they exaggerating their experience?
Top-quality service. Wasko say the three key measures of service quality are "timeliness, response, and organization of response." Musts to avoid, on the other hand, are recruiters who wait for clients to call for an update, are passive and not proactive, and are not fully engaged in the search. For example, says Belcher "I would not hire a recruiter who doesn't ask to meet the rest of the management team."
A firm grasp of the client's culture. "A good recruiter discerns what's not on paper in the job description; he's a good judge of fit in the intangibles of the search," says Wasko.
No conversation about finding the right headhunter is complete without mention of networking. "Ask around," says Belcher. "It's important to find someone who's a good fit for you." He should know about networking for a search partner. The recruiter he retains is the same one who placed him in a previous CFO position.