A lot of Search companies are going performance-based, or a combination of paid and performance campaigns. Some high end agencies might even be prepared to talk if your revenues are large enough. It's a natural progression for the industry. The company I work for are exclusively paid, and if we had gone performance-based on all clients this year we would have made several times more profit.
So, perhaps the real question is how confident are you in your business making money from search? If not, performance-based seems logical.
In terms of hiring an individual or agency, you're best bet is seek out legitimate recommendations and have a short-term contract which you can get out of if things don't go well. You'll either get some who knows fancy terms but is clueless to implement, in effect wasting your time. Or if you go the agency route you'll probably have to put up with a sales person trying to flog you the services of their receptionist, and not really delivering on the supposed hunger for commission.
SEO, for the most part, everyone knows the same things, applies the same tweaks, it's more like financial advice to get the most return (e.g efficiency of deploying resources). The more you control the details upfront, the greater you'll yield down the line. The other major consideration is how broad their marketing approach is. If you have someone who is able to improve conversion, advise on getting the most of PPC, display, affiliate advertising etc, again the more value you get out of the deal.
