Human resources. We don’t really take the time to think about what that phrase really means. Human. Resources. For companies, people are the most valuable resource and are renewable and replaceable. Just as quality employees cost a pretty penny to attract further business initiatives, they are just as – if not twice as – expensive to replace.
It’s curious how quickly management – for political or performance based reasons – can quickly turn to replacing their human resources as opposed to cultivating them; Thinking that simply changing talent will change results. While in some cases this may be true, we know organizational and leadership issues can be to blame. But what if changing employees isn’t enough? What if analyzing and working on the issues ends up not only being the smarter solution, but the cheaper one?
The cost of mid-level and executive turnover is expensive. According to reports citing various research studies of turnover costs, replacing mid-level and executive leaders with salaries from 100 thousand to 2.5 million dollars can cost anywhere from 150-400% of an employee’s salary. The more specialized the employee, the higher the costs skyrocket. The costs can be figured in a variety of ways: executive recruitment costs, search fees, relocation costs, incentive compensation, benefits, costs of lost productivity or having another employee temporarily take over the work, and the orientation time and learning curve it takes for the employee to catch up.
Most turnover costs go unreported to senior executives. Some reasons include lack of recording of actual costs, implementing quick and dirty performance improvement strategies like half-hearted performance improvement plans (PIP), lack of proper assessment of the real contributing causes of lackluster performance and interpersonal conflicts, as well as hiding facts and explanations due to internal politics.
Now enter my shameless plug: Given these statistics, coaching can cost anywhere from 5-10% of an employee’s salary. Not only does executive coaching avoid turnover costs, it can improve the bottom line. A conservative estimate of ROI in executive coaching is an average of $100,000 and other reports of $500,000 to $1 million. In one case study, a hospitality company saved $20-60 million in costs by coaching their top 200 executives. (The Coaching Federation, 2002)
The consequences of investing in a company’s human resources are not only abstract (improved planning skills, interpersonal skills, and leadership skills) but they have real financial benefits that outweigh the costs of replacing staff with new talent. Even if a client ends up being uncoachable, potential liability issues are avoided especially in light of new supreme court rulings that protect employers from discrimination claims when having attempted adequate performance improvement plans.