Instead, he chose Kathy Forbes, who runs a small recruiting business in Atlanta. 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. In choosing an assignment, recruiters now routinely consider how well a client's stock might do, especially given the recent market swings. 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.
Recruiters are well positioned to get what they want.
Venture capitalists and other investors are flooding start-ups with capital, allowing companies to throw around large sums to pay somebody to help run the business. Top recruiters have typically demanded the equivalent of a third of the executive's first-year pay package. With the booming stock market, those packages have increasingly included a hefty portion of stock options or warrants, and recruiters have begun in the last year or two to ask for a third of that equity as well. An investor in Relativity, Mr. Johnson suggested Heidrick for that search. Mr. Wadhwa, though, was surprised by the overheated environment for his company's first major search.