When it comes to securing top leadership talent for your insurance business, there are two primary recruitment models to consider: retained insurance executive search and contingent recruitment. But what are the costs associated with each?
Having covered the basics of these two approaches in a previous article, below we dive deeper into the costs and financial implications associated with both a retained search method and a contingent recruitment approach.
Retained Insurance Executive Search: Breaking down the costs
Retained search firms typically charge a fee that is calculated as a percentage of the successful candidate’s first-year compensation package.
This fee generally falls within the range of 30-35% of the hired individual’s total first-year earnings.
The payment structure is usually divided into three installments. One third is due at the outset of the search assignment. Another third is payable after a specific time period or after an agreed milestone. The final third is paid once the candidate has been successfully placed.
For instance, if you’re seeking to fill a position with an annual salary of $200,000, you can expect to pay a retained search firm anywhere from $58,500 to $68,250 for their services.
This fee covers the dedicated time and resources the firm will invest in your search process, including comprehensive market mapping, candidate sourcing, initial interviewing, and negotiation efforts.
Contingent Insurance Recruitment: Breaking down the costs
Contingent recruiters also typically base their fees on the successful candidate’s first-year compensation package, often charging between 20-25% of that amount.
However, the key difference lies in the payment structure: this fee is only due once the candidate has been successfully placed and commences their employment.
Comparing Costs: Retained Insurance Executive Search versus Contingent Recruitment
At first glance, the contingent recruitment option may seem like better value for money
It’s important to remember however, that the true cost of finding A-player insurance talent goes beyond the fee itself.
It’s also crucial to consider the value you receive for your investment, the job role you’re seeking to fill and the potential costs associated with a poor hire or a long, drawn-out search process.
Value for Money
Retained insurance executive search firms provide a comprehensive, dedicated service.
They will be acting exclusively for you and not passing candidates to other competitor insurance businesses who are also actively seeking similar leadership talent.
Retained insurance executive search consultants will invest significant time and resources into thoroughly understanding your organization’s unique needs, culture, and requirements.
They will meticulously source and vet candidates to ensure an optimal fit.
Working with a retained insurance executive search partner guarantees the client will be presented with the very best candidates available in the market, not simply the easiest ones to find. You can read more in our ‘Finding transformational insurance talent and engaging with passive candidates’ insight.
Retained firms typically offer a guarantee period, during which they will conduct a new search at no additional cost if the placed candidate leaves or is terminated within a specified timeframe.
Due to their payment structure, contingent recruitment firms on the other hand, may not be able to invest the same level of resources into your search. They are likely to be sourcing insurance candidates for a range of insurance businesses.
They may also be less likely to provide a guarantee period. If they do offer one, it may be shorter than that typically provided by a retained search firm.
Cost of a Bad Insurance Hire
A bad hire can be extremely disruptive and costly. Outside of the financial impact, there will be lost productivity and potential reputational damage to your insurance business.
It is generally accepted that a poor hiring decision can cost up to 30% of the employee’s first-year earnings. For a position with a $300,000 annual salary, the cost could amount to $90,000.
Retained executive search firms, with their comprehensive candidate vetting and due diligence, combined with their guarantee period, can significantly reduce the risk of making a costly bad hire.
While contingent firms also strive to place the right candidate, the resources they commit to researching candidates and ensuring the candidate fits with the business culture, is unlikely to be as extensive.
Cost of a Prolonged Insurance Search
A prolonged search for the ideal insurance executive candidate can also be a significant financial burden.
Every day a position remains unfilled, impacts an insurance business’ productivity. With other employees being required to take on additional responsibilities to compensate for the vacancy, this can lead to stress, burnout and decreased morale within the team.
Retained insurance executive search consultants, with their dedicated services, will be focusing exclusively on your search. They will not be juggling multiple search assignments, trying to fill the same insurance leadership roles for similar clients.
As a result, retained insurance executive search firms can often fill positions more quickly than contingent recruitment firms.
It’s important to note though, that the speed of a search can also depend on a range of factors, such as the attractiveness of the position, the current state of the job market, geographic restrictions on the candidate pool and the working patterns of the hiring insurance business.
Making the Right Choice for Your Insurance Business
When comparing the financial implications of retained insurance executive search versus contingent recruitment, it’s about more than simply considering the fee.
To compare the true costs, the hiring business must also review value for money in terms of the quality of service received, as well as the potential costs of a bad hire or a prolonged search process.
Retained insurance executive search can be a worthwhile investment for senior-level positions – from SVP to C-level roles – which have a significant strategic impact on the business and the right candidate can significantly impact your organization’s success.
It can also be a wise choice for a critical hire, where you need to fill a position quickly or if you value a comprehensive, dedicated service and a longer guarantee period.
A contingent recruitment approach can be a more cost-effective option for mid-level positions and below, or where it is less urgent to fill the position.
It can also be a more suitable choice if you’re happier with a less comprehensive service with a reduced guarantee, should the candidate not be a good fit or decide to leave.
If you don’t value exclusivity, and are happy to have multiple recruitment firms working for you at the same time, a contingent approach might be a better option.
Ultimately, choosing between a retained insurance executive search and contingent recruitment method is a decision that should be defined by the insurance leadership role in question and the strategic needs of the business.
If you’d like to better understand the costs and financial implications of retained insurance executive search versus contingent, or want further detail on how you can attract and retain the best insurance leaders to your business, we’d love to tell you more.
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