Do You Want Your Next Executive Officer to Cost You $1.9 million?

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(or a quarter of a million dollars the minute you sign them on?)

Here’s the definitive comparison of what it costs you to put a highly qualified executive on your team: permanent employee vs. interim executive. Spoiler alert: this infographic will blow your mind.

Do You Want Your Next Executive OfficerThe following aggregated data assumes this baseline: You need an operational excellence executive at a salary rate level of $180,000 because you’re initiating a transformation within your organization and you don’t have the right leadership talent on-board to make it happen. You have two options for acquiring candidates with virtually identical qualifications, experience and capabilities — full-time hire or contracted interim executive talent.

If your budget is unlimited and you anticipate needing someone in the transformation leadership role for many years, you may be leaning towards permanent hire. If your budget has limits, and your immediate goals need to be achieved quickly, an interim executive is what you want (and you want to use an interim talent provider to supply your candidates). Here’s why:

Part 1: Picking and Placing

The cost of identifying, recruiting and hiring a permanent executive averages

  • $3,000 in advertising costs,
  • $54,000 in retained search costs (estimate based on a conservative levy of 30% +/- of first-year salary),
  • $4,000 of your in-house talent performing final interviews and reference checks prior to hire (this is for one candidate only),
  • and a (again very conservative estimate) investment of $40,000 to perform the on-boarding orientation, training, cultural development and other up-front work the will give the executive the ability to produce strong results and avoid the exorbitant resource drains of executive failure.

You’ll be out-of-pocket $101,000 before this new-hire does any work for you.

Conversely, you can bring in an ideal executive on an interim basis by utilizing a top-talent placement firm that has already done everything required to identify and recruit the right executive — you’ll have no advertising costs, and you will use few resources on interviewing and vetting the candidate. For the same person you would hire permanently, you’ll only invest about $7,000 for a refundable search and identification, and because these interim executives are experts at moving from company to company, the on-boarding should be completed for about $21,000. Long and short? The interim executive will cost you less than a third of the permanent candidate just to get in the door a get ready to work.

Part 2: Paying and Incentivizing

A conservative estimate of a $18,000 signing or referral bonus will go to the hired executive — zero to the interim talent. Typically, you’ll pay a higher initial rate for the interim executive because it’s an all in cost (there’s not payroll, benefits, bonuses or taxes to pay the interim contractor.  Where the dramatic cost difference comes into play is in the area of benefits. You can expect to pay $182,000 in salary plus 124,000 a year to cover bonuses, flex pay and various insurances including health for the hired executive, and sign up to commit a contribution at the very minimum $8,000 to his or her retirement package. That’s a difference of low thousands vs. over a quarter of a million dollars, all because contractors don’t require incentivizing because the professional and lifestyle reward is their incentive.

Part 3: The Cost of Doing Business

This expanse set is a firm one. One-for-one. Both executives need a work space, supplies, travel expense around, and a slush fund. Unless there is extensive travel required, or excessive supplies, either executive in this skills bracket should be able to do business for about $41,000 to you.

Part 4: When It Doesn’t Work Out

It is estimated that the price tag for a bad hire is conservatively six times the salary.  Tom Mallory outlines the real costs of a bad hire very effectively in his report “What does a Bad Executive Hire Cost YOU?” He describes the five areas most organizations do not consider when estimating the real costs of bad hires.  They are:  performance, separation, reputation, waste, replacement.  There is a dramatic impact on your organization that can result in the millions, not just six times the salary.

When you do a permanent hire of an executive and it doesn’t stick — either they choose to move on in a few years or they fail — at this capabilities and skills level, you’re going to take a $1.5 million hit. (Onboarding, by the way, is the greatest preventative for executive failure). If, for any reason your contracted interim executive leaves or becomes a bad fit, the placement firm will quickly get someone else in to get it done for you, and your out-of-pocket is highly unlikely to be more than $25,000, if that.

At the End of the Day

No individual is a 100% sure thing. People change, life circumstance interruptions crop up… anything can happen that has your talent, whether permanent or interim, here today and gone tomorrow. As we all say, ‘it’s a gamble.” So do you want to gamble with $1.97+ million or $302 thousand?

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