The Quiet (and Expensive) Cost of Poor C-Suite Retention

Poor retention in the C-suite is extremely costly. Here is how much it may be costing your organization. 

Recently Stanton Chase’s Global Human Resources Practice Leader William Brewer, CCP discussed the importance of retention in sustained business success. He also touched on how important it is for leaders to adhere to performance standards and lead by example as a key element of an effective retention strategy. 

Not only was the discussion able to shed light on the importance of retaining key employees, but it also showed how catastrophically expensive it can be to lose quality talent, especially in the C-suite. Here are a few additional thoughts (and accompanying statistics) to underline the quiet yet costly impact of losing a valuable member of your management team. 

The “Hard” and “Soft” Costs of Poor Retention 

If you want to understand how expensive retention is, you need to consider the negative side effects of hiring. When a company hires someone, there is usually a series of cascading costs associated with the activity. These include: 

• A lengthy interview process 
• Onboarding procedures 
• Initial training for the position 
• The effort made by mentors 
• Ongoing training costs 
• Recurring salary, perks, and benefits 

Each of these items comes at a cost of time and resources. In fact, SHRM reports that 30-40% of the costs associated with hiring someone are “hard costs.” That is, predictable, known expenses. The rest comes in the form of “soft costs” such as lower productivity, a negative effect on morale, and other companies taking advantage of the relapse in competitive momentum. 

Estimating the Bottom Line 

So, how do you put a number on the official “cost” of needing to replace someone in the C-suite? The previously mentioned SHRM report claims many employers put the figure as high as three to four times the position’s salary.  

Other sources, like Gallup, suggest a number closer to between one-half and two times the total salary. Either way, we’re talking about a sizeable chunk of change. 

If you are wondering what the specific amount is that you are multiplying, we have done a little research of our own to provide you with a solid example. We based the following estimates on data that we collected from the salaries of executives of mid-market companies in the Los Angeles area. In this case, we defined mid-market companies as those with roughly $750 million revenue per annum. 

In addition, these figures are representative of all industries. They also reflect the compensation of top talent paid closer to the 75th percentile and are a lump sum of TCC (total cash compensation—i.e. annual base salary and bonuses). 

With those parameters considered, we discovered the following TCC for top talent for these high-profile positions: 

• Chief Executive Officer (CEO): $1.8 million 
• Chief Operating Officer (COO): $1.15 million
• Chief Financial Officer (CFO): $983,700 
• Chief Information Officer (CIO): $750,600 
• Chief Human Resources Officer (CHRO): $664,500 
• Chief Sales Officer (CSO): $564,600 
• Chief Marketing Officer (CMO): $553,600 
• Top Supply Chain Executive: $521,000 
• Chief Information Security Officer (CISO): $421,500 

Keep in mind that these amounts reflect TCC for top talent compensated towards the 75th percentile. Our Stanton Chase team members have seen packages that exceed these figures to acquire top talent. These figures do not take into account additional compensation from LTIP (long-term incentive plan) data, such as appreciation-based (e.g. stock options/stock appreciation rights), stock-based (e.g. delivered in shares of the company stock, phantom shares), or cash-based (e.g. delivered in cash and is not tied to the performance of shares) benefits.  

Now, to use the above cost-per-hire multipliers of double or even quadruple the salary, the average cost to replace a Top Supply Chain Executive would stand between $1 million and $2 million. A CHRO would be between $1.3 million and $2.6 million. A CFO would be pushing the $2 million to $4 million mark. 

We are not talking about minor hiring costs here. These are substantial expenses that can significantly (and at times severely) impact a business. 

Putting a Value on Retention 

Too often business leaders treat retention as a natural part of the business cycle. And, to be fair, employees do come and go at a faster rate than they have in a long time. 

Even so, maintaining a below-average retention rate is not a cost-effective way to run a business. There is a very real cost associated with losing employees—especially when they come from the upper echelons of your organization. 

If your company is struggling with retention, it is time to do something about it. There are multiple ways you can take action to address retention issues in the C-suite: discover why employees are leaving, invest in their future, and create a quality workplace culture. 

“There are multiple ways you can take action to address retention issues in the C-suite.” 

It’s also a good idea to work with a reputable recruiter when the time does come to replace key talent in your leadership team. At Stanton Chase, we’ve been around the block when it comes to C-level recruitment. By leveraging our past experience, extensive network, and proven hiring strategies, we can help you find the right candidate for each position. Having the right people in place from the beginning makes long-term retention much easier.