When Relativity Technologies began a search this spring for a new president, its equity was in great demand. Even before negotiating with job candidates, it had to deal with the demand for a stake from the executive search firms.
Well aware that competition for top talent is fierce, Vivek Wadhwa, the company's chief executive, planned to hire one of the top firms. When he contacted two of them, Heidrick & Struggles International and Christian & Timbers, he was surprised to find that they wanted more than just a six-figure cash fee. Each asked for a sizable equity position in his company, an up-and-coming software developer based in Cary, N.C., that eventually plans to go public.
Mr. Wadhwa considered the price, nearly half a million dollars, too high and refused. Instead, he chose Kathy Forbes, who runs a small recruiting business in Atlanta. "It's become insane," he said. Companies like his are no longer selecting search firms, he says, so much as the firms are picking them.
Giving away an equity stake began as a way for companies without much cash to compensate lawyers, consultants and recruiting firms. But deluged with work in a tight labor market, executive recruiters increasingly demand - and get - equity as a condition of performing a top-level search for many private companies aiming to go public or others whose stock seems particularly appealing.
"We've created this mantra: you want to work with us, we have to get equity," said Ted Martin, the founder of his own recruiting firm in Chicago. In choosing an assignment, recruiters now routinely consider how well a client's stock might do, especially given the recent market swings. "With all these new technology companies, everybody wants to be in because you want the home run," he said.
Few executives seem to have taken Mr. Wadhwa's stance, refusing to hand over a significant share of their company, but others have bristled at the arrangement. "You are going to run into clients who think you're smoking weed," Mr. Martin admitted.