When engaging a retained executive search firm, clients—especially CFOs and procurement leaders—expect financial transparency and clarity. One of the most common concerns that arise near the conclusion of a search is: What happens if the candidate accepts an offer with a salary lower than the one we initially projected?
Does the firm adjust its fee accordingly? Will there be a refund? Are there protections against overpayment?
This article answers those questions, drawing from industry-standard practices, contractual norms, and real-world scenarios.
Understanding the Basis of the Fee: Estimated vs. Actual Compensation
Most retained executive search agreements are structured around a percentage of the candidate’s First-Year Guaranteed Cash Compensation (FYGCC). This includes base salary, guaranteed bonuses, and any signing bonuses—but excludes discretionary bonuses and equity in most cases.
“The fee is based on ‘First-Year Guaranteed Cash Compensation,’ which typically excludes discretionary bonuses or equity.”
At the outset of a search, this compensation figure is estimated based on the role, market conditions, and the client’s internal benchmarks. The search fee is then typically split into three installments: one at engagement, one at shortlisting or milestone delivery, and one upon successful hire.
The Final Invoice and the ‘Reconciliation’ Process
Once a candidate is hired and their actual compensation package is known, a final invoice is issued. This is not merely the last of three fixed payments—it includes an adjustment.
“The final invoice includes a ‘reconciliation’ or ‘true-up’ to align the total fee with the candidate’s actual compensation.”
If the salary is higher than projected, the final installment increases to reflect the higher fee percentage.
If the salary is lower, the final installment is reduced accordingly.
“If the actual salary is lower than the estimate, the final installment is simply reduced to reflect the lower total fee.”
This process provides fairness and flexibility. The client pays in proportion to the actual outcome, not just a forecast.
What Happens If There’s an Overpayment?
Sometimes, particularly when the first two installments are based on a higher salary estimate, clients may have already paid more than the final, corrected fee.
“In the rare event of an overpayment, firms typically issue a credit memo for future services rather than a direct cash refund.”
This is a standard accounting practice. Search firms rarely provide cash refunds, but most will honor a credit that can be applied to a future search, especially if the client is a repeat partner. This approach balances financial fairness with operational practicality.
Beware the ‘Minimum Fee’ Clause
Not all contracts allow for downward adjustments. Some include a minimum fee clause, which protects the search firm’s investment of time and resources.
“It’s important to review the agreement for a ‘minimum fee’ clause, which sets a floor for the total professional fee.”
For example, even if the candidate’s actual salary is 25% below the original projection, a minimum fee may still apply—usually representing a baseline percentage (e.g., 25% of $200,000) regardless of final comp. This is why procurement teams must scrutinize this clause before signing.
Step-by-Step: How to Calculate a Final Invoice Adjustment
Here’s how you can reconcile retained search fees when the final salary is lower:
Example Scenario:
- Estimated FYGCC: $300,000
- Fee Rate: 30% = $90,000
- Installments Paid:
- 1st: $30,000 (Engagement)
- 2nd: $30,000 (Milestone/Shortlist)
Actual FYGCC upon hire: $250,000
Adjusted Fee @30%: $75,000
Total Paid So Far: $60,000
Final Installment: $15,000
But if you had paid $70,000 based on a higher midpoint estimate, you would have overpaid by $5,000.
“How to calculate final retained search invoice adjustment” becomes essential knowledge here—for both finance and procurement to verify compliance with the agreement.
In that case, expect either a:
- Reduced final invoice (if unpaid)
- Or a credit memo of $5,000 for future services.
Conclusion: Transparency Strengthens the Relationship
Handling the reconciliation of retained search fees when the final salary is lower than expected doesn’t have to be a point of friction—it can actually build trust and long-term partnership.
By clarifying:
- How fees are adjusted,
- What clauses might affect that,
- And what remedies exist for overpayments,
…you position yourself as a sophisticated and fair partner—traits clients highly value.
Bonus: Key Takeaways for Clients
✅ Always confirm whether the contract includes a minimum fee clause
✅ Ensure the definition of compensation is clearly spelled out (base vs. total comp)
✅ Ask upfront: “How does your firm handle reconciliation if the final salary is lower?”
✅ Don’t expect a refund—ask about credits
✅ Document the final comp package in writing for clear invoicing
Beyond Fee Adjustments: Understanding the Full ROI
Understanding how retained search fees are adjusted when a final salary is lower than projected underscores the fairness and transparency of the model. It’s a clear demonstration that the partnership is based on actual outcomes, ensuring you only pay for the precise value delivered.
However, this fee reconciliation is just one component of the larger financial picture. To truly appreciate how the retained model is structured to maximize value, it’s essential to understand the complete fee framework—from the purpose of each installment to the ultimate return on your investment.
For a comprehensive exploration of retained search pricing models and how they translate into long-term value for your organization, we invite you to read our definitive pillar post:
➡️ Read Our Guide: The Retained Search Fee Structure Explained: A Guide to Pricing & ROI
