Search economics: what the fee buys and how to structure it
A third of first-year compensation sounds steep until you price the alternative. Sometimes it still is steep.
Retained search fees are often quoted as a share of first-year compensation, with payment tied to agreed milestones. The percentage, fee basis and milestones vary by firm and mandate. For a senior CXO that is serious money. Whether it is money well spent depends on what you compare it to - and most comparisons are drawn wrong.
The real comparison set
- Cost of a mis-hire at CXO level: severance, lost time and a damaged team can exceed the search fee
- Cost of a vacant seat: nine months without a CRO is not free, it is unpriced risk
- Cost of doing it in-house badly: your TA team's time is not zero, and their reach is not the market
Terms worth negotiating
The replacement guarantee: compare its duration and exclusions, and check what happens if the replacement search is unsuccessful. The expense cap: expenses should be real and capped, not a margin line. And exclusivity terms both ways - you get their full commitment, they get your honesty about other channels.
Where not to economize
Choosing a search firm on fee for a CXO seat is choosing a surgeon on price. The differentiators that matter - the partner's actual market knowledge, who does the work (partner or analyst), and the firm's completion rate - are visible in reference calls. Make three before you sign.