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leadership-brief

The Cost of a Wrong Executive Hire

By Etheline Desir | Desir Group | LeadershipBrief.com

This month, we will focus on “The Cost of a Wrong Executive Hire”, and next month, we will address, “How to Ensure the Right Hire—Every Time.”.

We often hear, “People are our most valuable asset.” But are they really? After 27 years of doing search work, I continue to be surprised at the lack of authentic analysis given to the hiring process surrounding executive talent, knowing the enormous cost of a wrong hire. According to a study by the Society for Human Resources Management (SHRM)*, the cost of a bad hire is as high as five times his/her annual salary. An article in Forbes, noted that Zappos CEO, Tony Hsieh, once estimated bad hires had cost the company “well over $100 million.”

Recently, we have seen an unprecedented level of turnover among CEOs of health systems, as well as executives in the higher education sector. Although some turnover is obviously due to attrition and retirement, studies have suggested that the preponderance of executive separation stem from poor skills match, unclear performance objectives, and a lack of cultural fit.

From our own organic research at Desir Group, we have calculated the direct hiring cost for a CEO of a mid-sized hospital to be close to $1M. If he leaves within 12-18 months the cost more than doubles to include a severance package. Below are the direct costs associated with a wrong hire:

• Candidate interview (3) expenses: Travel, hotel, ground transportation, meals

• Search firm professional fee

• Search firm out-of-pocket and administrative costs

• Search Committee costs

• Internal interview team costs

• Candidate relocation expenses

• Compensation (base salary, signing bonus, performance incentive bonus)

• Executive benefits

• Candidate orientation

• Severance costs

• Replacement costs

Although the financial cost is high, indirect costs of a wrong hire have a far greater impact. These costs include poor employee morale, loss of productivity and opportunity, and possibly loss of customer respect and goodwill. Consider the havoc resulting from errors in judgment, bad strategies, lack of direction, poor execution, low employee morale, disruption to the organization from inconsistencies, and worst of all loss of trust of major stakeholders and the community.

Since Desir Group’s focus is on diverse placements, it would be disingenuous if I did not point to the fact that making a wrong “diverse” hire has even broader repercussions as the church, professional, civic, and social organizations are also counting on the success of the new diverse executive.

So, the price an organization pays now to ensure the right hire is far less when it takes the appropriate steps from the beginning than when it takes short cuts and selects the wrong executive. Desir Group is ready to partner with a 99 percent placement tenure.

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* https://www.shrm.org/ResourcesAndTools/hr-topics/talent-acquisition/Pages/Morale-Productivity-Bad-Hires.aspx

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