Executive search services procurement: Negotiation tactics

Abstract:

In “executive search services” procurement, buyers predominantly engage with search firms either on a percentage or fixed-fee pricing model. Arguably, fixed-fee is the most cost-effective model to source executive talent. However, across most industries (e.g., life sciences, automobiles, healthcare, technology), the battle to attract executive talent varies significantly. Hence, in order to draw highly competitive talent, companies work with search firms using a percentage-based pricing model (i.e., search firm fee = percentage of executive talent, CTC). Under this pricing model, suppliers can reap financial benefits in relative comparison to the fixed-fee pricing model. As a result, the search firm drives client engagement at a greater level and renders it services with minimal lead time.

Considering supply and buyer market dynamics, buyers adopt the percentage-based pricing model with a retained search type to identify executive talent. The prevailing executive search services fee is 25–35 percent for an applicant’s CTC; however, buyers have to negotiate the proposed services fee due to budget constraints. Hence, this article illustrates the negotiation tactics utilized by buyers while sourcing executive search firms.

Negotiation tactics:

Considering supply and buyer market dynamics, it is imperative for buyers to adopt the percentage-based pricing model to draw highly competitive talent, and to drive the supplier towards achieving targets. However, buyers should conduct services cost analysis to derive the optimal service fee amount threshold value. This can be done by analysing the services supply chain series of activities.

For example: search and screening processes can be sourced through hourly billing as well. Hence, buyers should carry out services cost analysis by combining hourly billing for two-thirds of the payment, and standard billing for onethird of the payment. This helps to derive the percentage for negotiating the proposed services fee charged by the search firm, via the percentage-based pricing model.