Leading U.S. search firms are celebrating their first annual revenue gains after three years of losses. U.S. professional fee revenue for the 25 biggest firms grew 20% in 2004 over 2003, the first such increase since 2000, reports Hunt-Scanlon Advisors, a research firm in Stamford, Conn.

Still, those firms' $1.135 billion in 2004 domestic revenue remains far below the high watermark of $1.720 billion set in 2000. "We are still about two to three years out from reaching that apex" again, increasing pressure for lower fees and more services, says Scott Scanlon, Hunt-Scanlon chairman and CEO.

It once was standard for retained-search firms, which generally fill upper-level jobs paying at least $200,000 annually, to collect retainers even when they didn't complete an assignment. (By contrast, "contingency recruiters" fill lesser-paying jobs and get paid only when positions are filled.) During the heady job market of the late 1990s, retained recruiters could count on fees averaging about one-third of a candidate's first-year compensation.

When the job market dried up, recruiters reduced fees, agreed to delay payments until they met certain performance targets and provided additional services. Now, corporate clients are making those recessionary changes permanent -- largely by holding recruiters more accountable and sometimes linking fees to targets. The new practice of paying retained firms' "contingent" on a performance goal has been dubbed a "container" or "retingency" arrangement.

"We're now applying the same rigor and discipline to search as we do to our other big corporate initiatives," says Eric Elder, senior vice president of executive recruiting for Bank of America Corp. in Charlotte, N.C. "We have managed the number of failed searches down to practically zero."

Mr. Elder says he and colleagues have become "maniacal" about receiving weekly progress reports from search firms.

READ: As Talent War Resumes, Recruiters Jump Hoops to Earn Their Fees

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