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180% Penalty: The Monumental Costs of a Bad Leadership Hire

Can your business afford to make a bad hire? There are some leadership selection process miscues that could wind up costing your business up to 180% of annualized salary, and that’s a figure no one wants on the books.

Standish has an admirable record for client retention of Standish-recruited leaders. However, for any business, even with strategic and disciplined recruiting, pushes and pulls can emerge to trigger the turnover of your recent hire.

Here are some key things to think about.

The Push. Most critically, new hires are too often on-boarded and then forgotten. They are entering a new business and a new culture. They need to understand the cues and the rules; the expectations and the performance measures; the personalities and the informal organization. Solid on-boarding goes beyond policy and benefits information and must be ongoing. Regardless of how senior the hire, there needs to be some months of mentoring and coaching. The absence of full and real assimilation will likely prompt the new hire to rethink their decision to join their new firm.

The Pull. The hunt for talent by other companies is never ending. If you’ve found a valuable new leader, others will also find him / her. Further, the company from whom you drew your new hire may have an interest in reclaiming their lost leadership asset (this does happen). Nurture this new asset as you would any other, assuring that you live up to commitments you’ve made, that they’ll continue to see the promised challenge and opportunity, and that they will feel that they’re an important part of the team. For the most part, they’re employees at will. As free agents they can elect to leave at anytime. The significant difference between them and your tenured employees is that your new hire is not yet fully vested in their new company. They need to be given every reason to stay.

The Cost Penalties. There certainly are costs to attract and engage a right new leader. But that’s not your big sunk cost. If you lose this new leader, add to that cost their limited productivity during the first few months as they come up to speed; the costs related to inefficiencies and missed opportunities during this period; the amount of time their new boss or board invests to position them to contribute their best; the compensation they’re paid during this period and their benefits (employer provided and government mandated). There are also the distraction costs as the organization, customers and suppliers adapt to the new leader. Get this wrong and there’s the further cost, disruption and temporary vacancy related to doing it all again. All in, should this person not stay for the long term, the cost of the misadventure approximates an added 180% of one year’s salary.

Averting Cost and Turmoil. The simplistic point here is that once you’ve found, hired and trained a new leader, don’t lose them. More specifically, keep every commitment you’ve made to them, your business, and yourself. Treat him or her as an equal team member; assure that they continue to see the promised challenges, opportunities and rewards. Be a good and present mentor, coach, and sounding board.

Your business will periodically draw from the global pool of talent to keep your organization agile, competitive and profitable. As you do, take the time to be strategic and engage the best support and advice. Assure that you get it right – the first time.


Stan Davis is the Founding Principal of Standish Executive Search, a New England-based firm that advises business owners, executives and boards who are positioning their companies for accelerated growth, change or succession.

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