The retained executive search model is built on mutual commitment and strategic alignment. Unlike contingency recruiting, where payment is due only upon placement, a retained search operates on a milestone-based schedule—typically in three installments—reflecting the value of a structured, consultative partnership.
This article breaks down the 1/3, 1/3, 1/3 payment structure, what each phase entails, and answers critical questions like:
- What triggers the second payment in a retained search?
- When is the first retainer non-refundable?
- How is the final fee reconciled?
Let’s demystify the process for CFOs, procurement teams, and hiring executives seeking transparency around retained search fee milestones and deliverables.
✅ The 3-Installment Fee: A Snapshot
| Installment | Payment Name | Trigger | Purpose |
|---|---|---|---|
| 1st | Commencement Retainer | Upon signing | Secures the firm’s commitment & starts the search |
| 2nd | Shortlist Milestone | Upon candidate slate delivery | Reflects research, sourcing & vetting progress |
| 3rd | Completion Fee | Upon offer acceptance | Tied to successful closure of the search |
1️⃣ The First Installment: The Commencement Retainer
“The first installment, or ‘Commencement Retainer,’ secures the partnership and is earned upon receipt.”
This initial payment—typically one-third of the estimated total fee—is due when the search agreement is signed. It:
- Locks in the search firm’s resources
- Initiates the kick-off process, stakeholder alignment, and position specification
- Funds the early research, market mapping, and outreach
📌 When is the first retained search retainer non-refundable?
Almost always. This installment is earned upon receipt because the firm begins work immediately. Even if the role is paused or canceled, the upfront effort—often 30-50% of the total work—is already underway or completed.
2️⃣ The Second Installment: Triggered by a Key Deliverable
“The second installment is tied to a key deliverable: the presentation of a qualified candidate shortlist.”
This payment is often misunderstood. Unlike older models that set the second payment by date (e.g., “payable 30 or 60 days after kickoff”), best-in-class search firms now link it to a clear deliverable: the submission of a shortlist of vetted, qualified candidates.
Why this matters:
- It aligns payment with real progress, not arbitrary timelines
- It gives the client visibility into the firm’s momentum and market engagement
🔍 What triggers the second payment in a retained search?
The delivery of a slate of qualified candidates—typically 3 to 5 individuals who meet the position criteria and are actively engaged in the process.
3️⃣ The Final Installment: Completion of the Search
“The final installment is due upon search completion, typically defined as the candidate’s formal offer acceptance.”
The third and final installment reflects the successful execution of the search. It is due once the candidate accepts the offer, not when they start.
This nuance is crucial. A retained firm’s work typically ends once:
- An offer is negotiated and accepted
- A start date is confirmed
- All documentation is finalized
This payment confirms that the firm has fulfilled its obligation—delivering a hireable candidate, not managing onboarding or post-hire performance.
💼 Reconciliation: The Final “True-Up”
“A final ‘reconciliation’ or ‘true-up’ invoice is issued to adjust the fee based on the actual compensation package.”
Since most retained search fees are calculated as a percentage of the candidate’s total first-year cash compensation, the original invoice is based on an estimated salary.
Once the actual offer is accepted, a final retained search invoice true-up is prepared. This ensures:
- Accuracy of the total fee
- Any differences from initial assumptions (bonuses, sign-ons, equity, etc.) are accounted for
- Transparent alignment with the agreed-upon fee structure
🔢 For example:
- Estimate: $300,000 total compensation → 33% fee = $99,000
- Actual: $320,000 total compensation → Adjusted fee = $105,600
- True-Up Invoice: Remaining $6,600 is billed in final installment
🔁 How This Schedule Aligns Resources and Expectations
“This milestone-based schedule ensures a mutual commitment and aligns the firm’s resources with the critical phases of the search.”
The three-installment model isn’t just about spreading out payments. It’s a structure that:
- Guarantees priority access to senior recruiters and researchers
- Encourages ongoing collaboration between client and firm
- Reduces risk by tracking measurable progress throughout the engagement
It also ensures that the search remains a shared responsibility, with both parties invested from start to finish.
🧾 Sample Clause: Executive Search Payment Terms 1/3 1/3 1/3 Model
A typical clause in a search agreement might read:
“The total professional fee shall be equal to 33% of the successful candidate’s first-year total cash compensation. This fee shall be billed in three installments: (1) One-third upon commencement of the search; (2) One-third upon delivery of a qualified candidate slate; and (3) One-third upon acceptance of an offer by the selected candidate. A final reconciliation invoice will be issued if the actual compensation differs from the initial estimate.”
📊 Summary: Transparent, Value-Aligned Billing
| Installment | Timing Trigger | What It Pays For |
|---|---|---|
| 1st – Commencement Retainer | Contract signing | Launch, intake, strategy, market mapping |
| 2nd – Shortlist Milestone | Candidate slate delivered | Sourcing, outreach, qualification |
| 3rd – Completion Fee + True-Up | Offer accepted | Interview support, reference checks, closure |
| Reconciliation | Post-offer acceptance | Adjusts fee based on actual comp |
✅ Final Thoughts
The retained search fee milestones and deliverables model is purpose-built for high-impact, senior-level recruiting. It ensures both sides are fully committed and that the search firm is compensated not just for results—but for the rigorous process that leads to those results.
If you’re evaluating firms or drafting an agreement, make sure you understand:
- The triggers for each payment
- What each fee covers
- How the final fee will be reconciled
Clarity here builds trust—and a successful search begins with aligned expectations.
Beyond the Schedule: Understanding the Full Fee Structure
Mastering the 3-installment payment schedule is fundamental to managing a retained search engagement effectively. It provides clarity on cash flow and aligns payments with tangible progress, ensuring a transparent and predictable partnership.
However, this schedule is just one component of the complete financial picture. To fully appreciate how the total fee is calculated, what different pricing models exist, and how to measure the ultimate return on your investment, it’s essential to explore the entire fee structure.
For a deep dive into how retained search fees are calculated and justified by the strategic value they deliver, read our comprehensive pillar post:
➡️ Read Our Guide: The Retained Search Fee Structure Explained: A Guide to Pricing & ROI
