Legal Recruiters and Their Functions
The primary functions of legal recruiters are "placing" attorneys and law firm professionals with law firms. The legal recruiter acts as a "middle person" between attorneys and law firms. Just as in a real estate transaction, the recruiter has an obligation to make sure the placement is successful and meets the needs of both the attorney and the firm.
Legal recruiters earn fees on these transactions. Legal recruiters know how to match the right attorney with the right law firm. Legal recruiters understand the culture and people behind the law firms. Legal recruiters also understand the needs of their attorney clients. By assisting and marketing clients accurately, they are able to make the most successful placements .
Law firms have many more opportunities to use legal recruiters. They know there are areas they cannot advertise in without the risk of litigation for running afoul of anti-trust guidelines and other laws. Most law firms expect legal recruiters to approach on their behalf.
Attorneys can save time and effort when they engage legal recruiters to assist with their searches. Attorneys who are moving their career forward find it much easier to work with legal recruiters rather than try to independently identify potential opportunities. Having legal recruiters working on their behalf saves time and money. Understandably, they are willing to have their legal recruiters be paid higher fees in order to make certain their needs are met.
Commission Based Payments for Legal Recruiters
By far the most common form of payment for recruiters in legal is a commission paid as a percentage of the placement (hired candidate’s) first year base salary. It is worth noting that a commission paid on first year earnings (note: that excludes bonuses, benefits, etc.) as opposed to the entire first year compensation often provides the candidate with a more attractive compensation package than a contingency fee. At the same time, it addresses one of the most commonly cited complaints about contingency fees, which is that not paying for the effort spent pursuing a fee reduces the incentive to "commit" to the pursuit of the assignment by the recruiter. For the search consultant, this commission provides compensation commensurate with the time and effort required to conduct the search, while still allowing the candidate to have a more attractive compensation package.
Differences between Contingent and Retained Legal Recruiters
Retained recruiting is the practice of paying an advance (usually around a third of the recruiter’s fee) while the search is ongoing. That advance payment is non-refundable. At the end of the search, the retained recruiter will typically receive a few thousand dollars in addition to the first half of their fee in order to begin the process again if the search needs to be restarted. Once a candidate has been placed, the recruiter will receive the final half of their fee. Retained search usually requires an upfront commitment from the law firm and means the recruiter has handed over their entire database to the firm in order to see a placement.
Contingency recruiters are paid upon the placement of a candidate. If a candidate does not accept an offer or a law firm decides not to hire a candidate, a contingency recruiter will simply move on and recruit for the next position that comes along. The contingency fee is based on the target salary of the position that the candidate is placed in at the time.
Fee Arrangements for Legal Recruiters
As is the case with most industries, the legal recruiting field is not entirely uniform. Among other things, there are multiple fee structures used among individual recruiters and legal search firms. Each of these structures has merits, as well as potential downsides, so it is worth being aware of your choices in this area.
One of the most common fee structures is that of a "retained" search conducted by a firm. In this type of arrangement, you pay a percentage of the estimated salary of the candidate for whom you are looking as a retainer fee. If the candidate is found and hired, the remainder of the fee that you owe them on account of this successful search is calculated as a percentage of the candidate’s first-year salary. When you look at the final bill (minus the retainer), you should not be surprised to find that this search was very expensive and that the recruiter’s fee amounted to 25% or more of the first-year salary of the candidate you hired. Retained searches are typically only carried out when a firm is looking for a high level candidate in a difficult-to-fill position or in areas of the law where salaries are typically extravagant. A retained search might involve the placement of a partner-level candidate in a high-end or major market, or the selection of a high-level general or in-house counsel position. The retainer fee essentially acts as a good-faith deposit into the search to cover a portion of the effort. Search firms will not be incentivized to lower their fees here, as they are unlikely to get much push back from their clients on the subject of exorbitant fees.
The other common fee structure you may encounter is a contingent search, where you agree to pay your search person once a candidate is hired by your firm. In a straight contingency agreement, the fee is payable as a percentage of the first-year salary of the candidate. For the most part, this fee structure is common for lower- to mid-level associates, though it can also apply to some in-house and senior-level positions (it is important to note in this regard that retaining a legal recruiter for in-house posts can sometimes be as difficult as finding a candidate for those same jobs is). Contingent fees often range between 20% and 30% of the candidate’s first-year compensation. Importantly, you will be encouraged to work with just one to three legal recruiters (or legal recruiting firms) on a contingency search, as having more than that will likely confuse any candidate you talk with, and could even set the wrong expectations for the candidate.
Common Bonus Structures for Legal Recruiters
Understanding how legal recruiters get paid is necessary to put into context the ways and means by which firms may look for what they consider better or more suitable candidates after they have already taken a chance on a new or more junior recruiter. It is important to realize that legal recruiters as a matter of business necessity are incentivized to make placements, and for the most part they get paid on commission over the lifetime of the placement , not just on the initial offer and acceptance.
Incentive compensation (or performance incentives) basically means that a recruiter is incentivized based on the number of placements they make over a given period of time, whether it be monthly, quarterly, or annually. For example, if a recruiter averaged three new placements per month, each might earn them a $500 bonus in addition to the already sizeable commission they would reap per placement. Some organizations have only recently begun to offer benefits of this sort to newer recruiters.
Legal Recruiter Compensation Problems
Just like the challenges legal recruiters face in other industries, they also face challenges in getting paid. Here is where it can get a little tricky. The challenges in legal recruiter compensation involve the relationship of the recruiting firm to both the attorney applying for a position and the law firm that will be paying the compensation to the recruiting firm. Occasionally, the candidate is presented to the hiring law firm, but the hiring law firm is frustrated with the law firm in which the candidate works and chooses not to pay the recruiting firm, arguing that it did not request the recruiting firm. In these instances, the hiring law firm may not pay the recruiting firm any compensation at all. Recruiting firms, therefore, have to stay on top of candidates once they know they have a placement to ensure their compensation actually comes through. Sometimes the hiring law firm does try to negotiate with the recruiting firm on fees and, quite frankly, the recruiting firm has no choice but to accept some of these fees. After all, they are an independent party and are at the hiring law firm’s mercy. Sometimes the hiring law firm does not offer full fee to the recruiting firm, leaving billing disputes amongst recruiting firms.
Some recruiting firms will go so far as to charge what we call a success fee when a candidate is placed. When that candidate is offered and accepts an offer, that recruiting firm will then charge the candidate a fee. While I do not necessarily support this approach as it may put a candidate in a position where they become an adversary to the recruiting firm, I certainly understand the basis for the approach. Sometimes you simply cannot receive full compensation from a law firm and recognize that the job market has become extremely competitive for good legal candidates. The recruiting firms are faced with finding ways to compensate for their lower-than-anticipated commissions.
Legal Recruitment Payment Methods and the Future
The trends we see today will not likely remain the same in the future, or even the near future. As technology continues to advance at a break neck pace, we may see new payment models arise. The following are just a few examples of recent trends and predictions we’ve seen in how legal recruiters are paid:
- Allowances: Some law firms have begun providing allowances that allow legal recruiters to collect payment from a referrering firm but without any obligation for the recruiting firm to pay anything. Essentially, this allows a recruiting firm to collect payment from a firm without being responsible for any payment due to the attorney. We anticipate that these allowances will in some cases be passed on to the partner.
- Artificial Intelligence: While it may be premature to suggest that a legal recruiter’s job will eventually be eliminated by a computer, the introduction of artificial intelligence has been a disruptive force in many industries, and it may be so for legal recruiting as well. With AI, the steps that an attorney takes to search for suitable candidates may become accessible by law firms themselves in an automated method , which could essentially render the role of legal recruiter obsolete. That said, most law firms that we’ve spoken to readily admit that a legal recruiter as a middle party is a more efficient alternative for the time being.
- The End of Barrister’s Lie: Currently, the standard policy by the majority of recruiting firms is that the billing partner receiving credit for a hire cannot receive credit for the same hire by an outside recruiter. This means that there is no double-dipping among recruiting firms. It’s also acknowledged that it would not be fair for two firms to collect a fee, but neither would it be fair for a firm to receive credit for an associate via the recruiting firm when they do not pay the legal recruiter. We anticipate that the policy of the barrister’s lie fading costs may become less prominent.
- International Disruption: With the rise of internationalization, we expect that the standard payment model will change to fit the more competitive nature of co-recruiting relationships among international firms in order to attract and retain high-performing attorneys.