The High Cost of Replacing a Senior Manager
It’s difficult to put a true value on the loss of a key person. And, again, few companies fully weigh that cost.
Estimates depend on the level of the executive and the size of the organization. Some sources say that “a 10x salary multiplier is
… a CEO who procrastinates until the situation is irreversible has probably squandered six months to a year of valuable time. [iv]
relatively conservative.v ” In my research, the range was 2.5 to 10 times the person’s annual salary.
Naturally, the higher you climb, the higher the exit clause, severance packages or payouts, and executive recruitment fees will be.
My sources say that executive recruitment costs alone average 30% of base. So, for the sake of this conversation, let’s go with a more moderate 30% of pay: $75,000 – $180,000.
But the soft dollar costs are hidden so, once more, the real price tag will never traceably hit the bottom line.
We ought to retain our A and B players and it’s not a good idea to retain our C and D players. The costs of keeping an underperforming executive are tremendous. The cost of replacing is much lighter.” Bob Gershberg CEO | Managing Partner Wray Executive Search CEO
It’s Always an Awkward Transition
The loss damages not just the executive team but the entire organization. Consider:
• Lost productivity
• Lost company intelligence
• Others may opt out, taking institutional knowledge that is irreplaceable
• Compromised corporate image
• The reputation of the company may take a hit
• Lost engagement (How do you put a dollar value to impaired morale?)
The search for a replacement can take months. In a healthy organization, depending on how good the onboarding is with the new executive, you can add a couple months on the back end to stabilize again.Download Article 1K Club