SOUTHERN CALIFORNIA JOB MARKET : Headhunters’ Latest Worry Is Joblessness

It’s the old rich-get-richer story: If you need a job, you can’t get one. But if you already have one, you get offers of more.

Most executive search firms are besieged by out-of-work executives, said Paul Hawkinson, who publishes the Fordyce Letter, a newsletter for the executive recruiting industry.

“But generally search firms aren’t interested in those people. Those are the people who answer ads. Their resumes go everywhere on their own.”

In fact, Hawkinson said, executives who come to search firms--rather than wait for search firms to come to them--are often regarded as “kind of a pest.”

Hawkinson said search firms usually pump them for information about the companies that let them go and use them as steppingstones to meet other executives who are still employed.

The reason: Executives who are still employed are seen as more marketable.

“Most companies that are willing to pay a $20,000 or $30,000 search fee don’t want somebody from an unemployed pool,” Hawkinson said. “They’re looking for the guy who hasn’t updated his resume in a couple of years.”

But there may be some justice for out-of-work executives who believe that they have been taken advantage of by search firms.

As more corporations have economized by laying off or buying out the middle managers who are search firms’ bread and butter, the executive recruiting business has responded by laying off some of its own.

Kenneth Cole, editor of Recruiting and Search Report, another industry newsletter, estimates that “30% to 40% of the people involved in the search business have left in the last 12 months.”

Cole, who tracks about 7,000 headhunting firms, said the reasons for the executive-search cutbacks are twofold. In many industries, there are simply fewer jobs to fill. There are also more high-quality executives looking for jobs on their own.

This glut makes it tempting for some companies that once used search firms to hire directly, avoiding fees that usually run to about a third of an executive’s annual salary and bonus.

“Why should an employer pay a search firm to fill a position when the mailman brings him resumes from outstanding people every day for free?” Cole asked.

Bob Cowan, president of Search West, one of the largest search firms in Southern California, suggested the usual reason: “Generally, the best people are the last people to be put out on the street, and we know where they are.”

But he acknowledged that his rationale may be getting harder to sell.

“There’s always the perception of employers: ‘I’ll just run an ad or go by the grapevine,’ ” he said.

Cowan said his business has fallen off 20% to 25% since late last year.

“We have cut back our staff more by attrition than by layoffs,” he said. “But we had 180 account executives and are down to 140 now.”

California Executive Recruiters Assn. Director Bob Ackerman said Cowan’s experience seems typical of the 90 firms in his group, although “there are firms that have not felt this to a great extent and others that have been hit very hard.”

Ackerman said the common wisdom in the industry is that its vibrancy tracks closely with that of the overall economy.

“Many are saying that we’ve hit bottom, but we haven’t started to climb out,” Ackerman said. “Maybe in the fall. That’s the next optimistic point because I don’t think the summer has done anything.”

Others say they’ve seen encouraging movement this summer, particularly in certain fields.

Bill Simon, managing director of the entertainment division of Korn/Ferry International, said, “We’ve been seeing a slow but fairly steady improvement in the entertainment area over the last two to three months.” Most of the jobs he fills pay in excess of $100,000 per year.

Korn/Ferry is the world’s largest executive recruiter. Last year, its domestic revenue was up only 2%--the smallest gain in its history.

In fact, domestic revenues for the 40 largest recruiting firms in the country grew an average of only 2.8%, according to Executive Recruiter News, another industry newsletter.

But there was a “sharp split in performance by individual firms,” the newsletter said, with half showing increases and half declines of 10% or more.

Some, including Korn/Ferry, have responded to the recession by diversifying--offering services such as management consulting.

Others, such as Heidrick & Struggles, which was among the few big winners last year with a 20% revenue jump, are sticking strictly with search.

Heidrick & Struggles and Korn/Ferry are “retainer firms” at the top of the headhunter pyramid. They command fees in advance and concentrate on finding senior executives.

The bulk of the industry is made up of contingency firms, which work on commissions. Many are mom and pops.

They all distinguish themselves from employment agencies, whose clients are applicants, rather than companies. Employment agency applicants usually seek jobs that pay less than $30,000 a year.

Hawkinson, one of the newsletter publishers, has noticed evidence of significant downsizing simply by monitoring the change of address notices he receives from some of the 30,000 search firms he tracks.

He said many search firms have notified him that they are moving from downtown-sounding addresses such as “Broadway” to work-at-home-sounding addresses such as “Green Prairie Lane.”

One thing most search firms haven’t done, he said, is drastically slash prices--unless it is in return for concessions such as a long-term relationship with an employer.

“Most of the good firms will not cut their fees,” he said. “But they may bend some” on matters such as how long they guarantee that someone they have placed will remain on his new job or length of time that a company may stretch out its search fee payments.

Generally, there’s bargaining. The headhunter wants the work, but he also knows that he has a product--an executive--that the company wants and has not been able to find on its own.

“It’s like the automobile business,” Hawkinson said. “Nobody pays sticker price, that I know of.”