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. 

In his recent white paper, Stanton Chase’s Global Human Resources Practice Leader William Brewer, CCP examined 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 he able to shed light on the importance of retaining key employees, but he also touched on how catastrophically expensive it can be to lose quality talent, especially in the C-suite.  

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

“The Great Resignation” has also impacted C-suite turnover, though not all regions seem to have been equally affected. In the United States, one-fifth of corporate leaders leave their roles within three years or less of their appointment. In the European Union, that figure is closer to eight percent. 

When a company needs to replace someone in their C-suite, there is usually a series of cascading costs associated with it. 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 the cost of time and resources. Thirty to forty percent of the costs associated with hiring someone are “hard costs.” These are 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 your lapse 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? We estimate that the figure is between two and four times the position’s salary.  

If you are wondering what average executive salaries are, 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 in revenue per annum. 

With those parameters considered, we discovered the following total cash compensation (TCC) for these high-profile positions in Los Angeles: 

• 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 

The situation in the European Union looks slightly different, but that does not negate the costs companies incur in replacing C-suite executives. In the EU, the average TCC for a CEO of a mid-market company is roughly $1.7 million and the average TCC for a CHRO in a country like Germany (measured to the 75^th percentile) is approximately $260,000. 

Now, using a cost-per-hire multiplier of double or even quadruple the salary in question, let us examine the cost of executive hiring:  

• The average cost to replace a Top Supply Chain Executive in the US would stand between $1 million and $2 million.  
• A CHRO in the US would be between $1.3 million and $2.6 million.  
• A CFO in the US would be pushing the $2 million to $4 million mark.  

• Replacing a CEO in the EU would cost between $3.4 million and $6.8 million. 
• Replacing a CHRO in the EU would cost between $520,000 and $1.04 million.  

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, 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.