Cap Fees For Higher Salary Positions

  By Michael Gionta  |    Tuesday August 10, 2021

Category: Columns, Expert Advice



QUESTION: Do you cap fees for higher salary positions at the $150,000 or $200,000+ level?

 

ANSWER: The simple answer is: No. Let me share an example of this type of situation, the client said they would pay $150,000 to $200,000 in a salary, we find somebody, and then the process gets competitive at the end, and they have to go to $220,000 or $210,000 to get their desired candidate. 

In that situation, to show that I have no vested interest, I would cap my fee to $200,000 because of the extenuating circumstances that occurred at the offer stage. As a trusted advisor, I want to help my client get this candidate through to the finish line. 

This cap is done as a favor to my client, but not written into the fee agreement. There is nothing wrong with doing it necessarily if they give you a range of $150,000 to $200,000 to cap the fee at the high end of the range or pick a flat fee.  

Sometimes, I will pick a flat fee in the midpoint of the salary range. If the client said they wanted to pay $150,000 to $200,000, I might sit there quietly and do some quick mental math. I really want the results fee to 28.6%, so $175,000 x .286 is $50,005. I would then tell the client that I can do the search for a flat fee of $50,000, especially if it is a retained search. I would explain to the client that I am removing myself from any vested interest if the salary goes higher than expected by quoting a flat fee.  

I used this offer tactic quite often, especially with searches where I knew the space and what the potential salary was going to be. Also, at that salary level, you can include other aspects of the compensation, such as sign-on bonuses, any guaranteed compensation; for example, some higher-end VPs of Sales might have a $3,000 or $4,000 a month draw to help in their transition. We would put in guaranteed compensation into the proposal, but did not always get all of it, but would get part of it. Worst case, you do not get it, but generally, it affects the rest of the negotiation, and by that, I mean maybe you stick with a higher fee, but you drop the add-ons. 

Negotiation is always the perception of both parties feeling like they got a good value, so when you layer more things on, which gives you a few more things to give up or negotiate against, it might take the argument a lot of times off the fee number itself.  

Whenever a client wants to cap a fee, I would advise negotiating a flat fee. It shows that you are partnering with the client to help get them the best candidate for that high-level position.  

 


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