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 cluster around 30-33% of first-year cash compensation, typically in three tranches: engagement, shortlist, completion. 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 year, damaged team - routinely several times the 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 guarantee period: twelve months replacement guarantee is standard-acceptable at senior levels; six months is thin. 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.