The Costs of Failed Placements

The Costs of Failed Placements

With companies tightening budgets and being extra careful about spending, executives often feel "Executive search is so expensive." Fair enough. But let's take a minute and do a quick thought experiment: What might NOT using it actually cost you? This might put things into perspective.

What might NOT using a professional executive search process cost you?

Picture this: Your €500K executive hire just isn't working out. Let's do some simple math on what this failed hire actually costs.

A failed €500K executive hire actually may cost you...

• €500K salary + benefits (Year 1)

• €150K recruitment costs

• €200K onboarding and integration

• €300K opportunity cost of delayed initiatives

• €450K team disruption and re-recruitment

• let's assume €800K+ competitive disadvantage during vacancy

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 Total: 2.4 mio. Euros or more for one failed hire

And for a CEO earning €2M annually, these figures multiply proportionally - making the stakes even higher. 

This is backed by research - the Society for Human Resources Management found that bad executive hires can cost up to five times their annual salary. That's 500% of what you're paying them.

The Society for Human Resources Management found that bad executive hires can cost up to five times their annual salary.

Why senior placements often fail

Here's the thing - it's rarely about competence or lack of skills. The leading causes are often unclear performance objectives, poor cultural alignment, overemphasis on past titles versus real capabilities, and inadequate vetting processes. In many cases, companies simply rush to fill positions.

Basically, everyone's in such a hurry to fill the seat that they forget to check if the person can actually sit in it properly.

What executive search does differently

What executive search (or any professional, structured internal or external direct search and active sourcing approach) does differently:

• Getting all stakeholders aligned on expectations and requirements

• Proper market mapping

• Opening up the candidate field

• Cultural assessment that goes deeper than "do they seem nice?"

• Reference calls that actually matter

• Post-placement integration support

• Everything focused on making it a "great hire" instead of a bad one

The ROI reality

Quality executive search typically costs 33% of annual compensation. Failed recruitment can cost up to 500%.

Naturally, these costs will vary by organization and circumstances. But whether your calculation lands at €1 mio. or €3 mio., the core principle holds:

The financial risk of getting it wrong far outweighs the costs of getting it right.

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ABOUT THE AUTHOR

• Marion Heil is the founder and managing director of Board+CEO Advisors. She is based in Vienna.