Nobody likes to think about it, but the cost of turnover is a huge hidden cost in your business. Here is a good analogy. A leaky toilet. Did you know a single leaky toilet can waste as much water in one month as the average single-family home uses altogether in one month? The cost of your average leaky toilet? $840 per year. Higher than you thought? So is the cost of turnover in your business..
SHRM has a very comprehensive cost of turnover worksheet for front line, supervised workers. But we all know that the costs of leadership turnover are much higher, especially the indirect costs. And unplanned leadership turnover can get even more expensive. (Unplanned is not the same as unwanted. When an organization makes a hiring mistake and decides to terminate a leader after a short tenure, it is unplanned but not unwanted).
Forbes recently reported that, among the world's top companies, a single unplanned CEO departure costs $1.8 billion more than a planned CEO departure in shareholder value. Based on an average CEO salary of $12 million, that puts the multiplier at greater than 100x on a CEO's salary if you want to calculate the total cost of a single unplanned CEO departure for the world’s largest companies. Ouch!
Even if you are not one of the world's largest companies, leadership turnover costs more than you think.
- For front line workers, direct costs (replacement and individual productivity loss) of turnover are often calculated at 1-2x salary. But stopping there for senior leaders is just wishful thinking.
- Direct costs of replacement are much higher for C-suite and other senior leaders. Think executive recruiters, golden parachutes for terminated leaders, golden handcuffs for their replacements. What about the time other leaders will spend finding, vetting and onboarding a new leader? We are talking about costs that are orders of magnitude higher than the direct cost of replacing front-line workers.
- Then you have the indirect costs. What are the human capital costs – not just in terms of the knowledge and skill of the departing leader but as a result of the snowball effect as other leaders and associates reassess their employment options or even move along with the departing leader? (And my head starts to hurt when I think about calculating the indirect costs as that snowball effect cascades through an organization.)
- One source estimates the total cost of senior leadership turnover at a remarkable 40x salary multiplier for executives earning $100,000 - $250,000. That goes well beyond a leaky toilet to a main line break!
(Source: Leadership Retention Literature Review by Joe Rosse)
Given all that, it is safe to say that a 10x salary multiplier is relatively conservative. Do the math on that. Maybe you pay your CFO 300,000. Would you have put the cost of turnover at $3,000,000 for a single senior leader?
Leadership turnover costs more than you think. Intentional succession planning can help you avoid it. What are you doing about it? Need help? At Talent Plus we have some answers.
Dr. Kim Turnage currently holds the title of Senior Leadership Consultant for Talent Plus. In this capacity, she works with client partners in the selection, retention and development of leadership talent, including succession planning.
Senior Leadership Consultant