The two models, defined
Contingency search. The recruiting firm sources candidates, screens them against the role, and presents shortlists to the hiring company. Payment is conditional on placement: if no candidate from the firm's shortlist is hired, the firm is paid nothing. The hiring firm typically engages multiple recruiting firms in parallel. The fee, when paid, is a percentage of first-year total compensation. In Japan in 2026, reported contingency fees are 25% in banking and financial services (the only directory vertical where the market has standardised this low) and 30–35% across most other verticals.
Retained search. The recruiting firm is engaged on a fixed-fee basis to manage the entire search process, regardless of outcome. The fee is structured in three milestone installments — engagement (one-third on signing), shortlist (one-third on delivery), and placement (one-third on placement). The hiring firm typically engages a single retained firm exclusively for the duration. Retained fees are commonly described as "one-third of expected first-year compensation" — equivalent to roughly 33% of offered total compensation.
Why the model matters — risk allocation
In contingency, the firm carries placement risk. If no placement is made, the firm earns nothing despite invested consultant hours. Firms compensate by working at higher volume per consultant.
In retained, the hiring company carries placement risk. The engagement fee is paid regardless of outcome. The firm in turn invests deeper consultant hours per mandate, conducts confidential outreach to passive candidates, and provides post-placement assurance (typically a 6–12 month replacement guarantee).
The structural implication: contingency works for higher-volume hires where the candidate pool is broad and accessible; retained works for senior, scarce, or confidential hires where the candidate pool is narrow and active outreach is required.
When each is structurally fit
Contingency is fit when:
- The candidate pool is sufficiently broad that competitive shortlisting yields qualified candidates within 6–12 weeks
- The role is at IC or junior management level (analyst, associate, manager, senior manager)
- High-volume hiring (a single function building 5+ headcount) cannot economically support all-retained
- The role is not so confidential that competitive parallel sourcing creates information leakage risk
Retained is fit when:
- The candidate pool is narrow or specialist (senior MD, board, country head, scarce expertise — bilingual regulatory affairs, hedge fund PMs, semiconductor design directors)
- The role is at Director and above, almost universally for Country Head, VP, CXO, board director, and CEO
- Confidentiality matters — succession planning where the incumbent isn't aware, sensitive PE-backed leadership transitions
- Brand reputation matters in candidate engagement (some senior candidates respond only to retained outreach)
Hybrid is fit when:
- The role sits at the boundary — engaged search and container engagements provide partial retainer with placement-conditional balance
- The hiring firm wants a primary firm without full retainer — exclusive contingency or container engagement is common
Japan-specific dynamics
Bilingual candidate-pool scarcity pushes some verticals toward retained earlier. In US/UK markets, retained typically starts at $200K+ comp / Director-level. In some Japan verticals, retained appropriateness starts earlier — at the senior bilingual-IC level — because the bilingual candidate pool is narrow enough that active confidential outreach is required to access viable candidates. Examples: bilingual regulatory affairs at pharma, hedge fund PMs at Tokyo hedge funds, semiconductor design leadership at Japanese-domiciled fabs hiring foreign nationals, MD-level FS sales and trading.
The FS-specific 25% contingency fee compresses fee economics in financial services. Banking and financial services contingency in Japan is reported at 25% of first-year total compensation — meaningfully lower than 30–35% common in other verticals. This compression reflects sustained MSA volume with foreign-capital banks, recruiter-cohort maturity, and standardisation of fee terms. The implication: FS recruiters operate at higher volume per consultant to make the same revenue per consultant as recruiters in other verticals.
Mid-career switching norms are still maturing in Japan. 中途採用 became broadly normalised only over the last 20 years. Lifetime employment (終身雇用) and seniority-based pay (年功序列) culturally constrained candidate movement until recently. The implication: senior candidates in Japan are often more receptive to retained-search engagement than to contingency outreach, because retained framing aligns with the more deliberate cultural pattern of late-career moves.
Which directory firms operate primarily in each model
Predominantly contingency: Robert Walters, Hays Japan, Michael Page (PageGroup brand), Selby Jennings, Huxley, Computer Futures, Real Staffing, Progressive, Global Enterprise Partners, Build+, Morgan McKinley, JAC Recruitment, en world, RGF.
Predominantly retained: Korn Ferry, Heidrick & Struggles, Spencer Stuart, Russell Reynolds, Egon Zehnder, Boyden, Stanton Chase, Just Search Group (partner-led specialist boutique).
Hybrid: Cornerstone (contingency + retained for niche/critical hires), Robert Half (contingency primary; retained for executive search), Apex (retained and contingency mix across 11 specialist teams), Page Executive (the retained brand within PageGroup).
Project / contract staffing: Brunel (engineering/energy time-and-materials), ManpowerGroup, Randstad, Allegis Group (Aerotek/TEKsystems/Aston Carter), LHH (permanent placement primary; career transition specialty).
Retained engagement structures — milestone billing
A typical Japan retained engagement breaks down as follows:
Milestone 1 — Engagement. Paid on engagement-letter signing. Triggers research start and initial candidate-pool mapping. One-third of agreed fee.
Milestone 2 — Shortlist. Paid on delivery of agreed shortlist (typically 4–6 candidates against pre-agreed criteria) within 6–10 weeks from engagement. Triggers client interviews. One-third of agreed fee.
Milestone 3 — Placement. Paid on candidate accepting offer and starting (or, in some structures, on offer signing). One-third of agreed fee. Some engagements include a clawback if the placed candidate departs within 6–12 months; the firm typically commits to a free replacement search within the same engagement.
The total retained fee is typically structured as one-third of expected first-year total compensation. For senior CEO mandates, the fee may be capped (e.g., $400K–$600K) to keep large mandates economically rational.
Contingency engagement structures — what's actually negotiated
Fee percentage. 25% in FS and 30–35% in other verticals. Discounts for high-volume MSAs typically 25–28% in non-FS verticals; 20–22% in FS.
Replacement guarantee. Standard Japan contingency replacement guarantees are 90 days. Some MSAs extend to 180 days for senior placements. The replacement window is typically pro-rated rather than full-fee.
Exclusivity terms. Exclusive contingency engagement typically reduces fee to 25% (in non-FS) and 20% (in FS) in exchange for committed reach. Most contingency engagements are non-exclusive.
Fee floors. Some firms apply a fee floor (¥1.5–2.5M minimum) on lower-comp placements. More common at boutique firms than at the UK-listed generalists.
Decision framework
For a hiring manager deciding which model to use:
1. Is the role at Director level or above? → Default to retained.
2. Is the candidate pool narrow (specialist + bilingual)? → Default to retained even at IC level.
3. Is confidentiality required? → Retained.
4. Is the role IC through senior manager with broad pool? → Default to contingency.
5. Is the role mid-volume building (3–5 headcount)? → Mix of contingency and retained anchor.
6. Is the role technical project staffing? → Project staffing at Brunel, Progressive, or the Allegis brands.