The Expense You Can’t Afford

I just came from a summit of executives, where the hottest topic under discussion was talent acquisition. There was enthusiasm because talent is available. However, I was surprised to find that no one had a tangible plan for bringing in the right people. Given that we are emerging from an unprecedented period of sharp job loss, perhaps hiring and retaining talent would require a smarter approach than ones used in the past. A recent statistic suggested that 40% of new leaders going into new organizational roles fail in their first 18 months; 64% of new executives hired from outside the company fail; the average cost of a failed executive is $2.7 million! (Source: Executive Search Summit, 2008). Those statistics are rather sobering. Then I began to wonder what those costs might look like for a moderately large to large organization (revenues over $200 million). According to 2008 “Businessweek,” worldwide recruitment expenses approach $10 billion. For Forbes, that number approaches $11.6 billion. That suggests that approximately $4 billion are wasted in recruitment fees alone each year. But what does that mean for your firm? Let’s do the math. To hire a position might take one to two months of HR labor. At $60,000 a year, and at 20% of his or her time during that period, the cost will be approximately $2,000. If that hire is mid to senior level, that executive will command a salary of approximately, $90,000 a year. Benefits would be roughly $22,500, at approximately 25% of base salary. So, 40% of the time, your company loses $114,500 per mid to senior level executive that is hired. This does NOT include any recruiting fees, or costs to train or acclimate to the new role. And, you get to do this again next year or two. Multiply this number by 5 or 10 a year and you can see why this is a problem you can’t afford. Unless we learn from our history, we are doomed to repeat it.