The Cost of Onboarding

Posted by Genesis

Genesis Co-Founder Michael Watkins was recently interviewed by Jeff Hyman on the Strong Suit Podcast. In the interview, Watkins points out the astonishing fact that most organizations still use an "onboarding by Darwinian evolution" approach when bringing in executive talent. This fact is supported by research Genesis jointly conducted with Egon Zehnder into organizational onboarding effectiveness, published in their Harvard Business Review article, "Onboarding Isn't Enough."

What makes this lack of investment at such a crucial point in a newly-hired executive's career astonishing, is its stark juxtaposition with the amount of money invested in finding and placing that executive in the first place. Take a C-Suite  vacancy in a Fortune 500 company, the basic salary for which is $750K, for example. Now, double that figure to come up with a guaranteed first year earnings baseline and the investment in the executive search process—the equivalent of 30%-40% of the candidate's guaranteed first year earnings—starts at $450K. Now, add 10% of that figure per month for the duration of the search (on average six months minimum), and you are looking at a $720K executive search fee. Looked at another way, $720K is the cost of that placement, regardless of whether the executive succeeds or fails.

Based on the above (conservative) approximation of what it costs to find and place an executive at a Fortune 500 company, and given research shows that 40% of unsupported executive transitions end in derailment, one can only wonder why it is that organizations, on the whole, continue to adopt a "sink or swim" approach to onboarding executive talent. The typical rationale for the lack of investment in new executive talent is largely blamed on an inability to quantify the impact of onboarding and integration support. It's one of those nebulous things that eludes the calculator. However, we know the cost of hiring to be approximately the executive's basic salary, and we know that derailment in the first year means that salary again, plus "administrative on costs" at 20% of basic, plus severance; so, more than the cost of hiring the candidate and then some. And that does not take into account the very real and enormous opportunity costs related to the protracted "search-select-sink-or-swim-seeya" cycle.

One final factor to consider in this onboarding paradox, is the fact that the search and selection process takes on average six months from retainer, to short list, to offer; whereas, by comparison, a fraction of the executive search investment can ensure the success of the chosen candidate and get them up to speed and delivering results in as little as half that time. Of course, you can always continue to roll the dice and hope that your executive intuits his/her way through the first few months, but if they don't, be prepared to embrace the prospect and cost of spending a further six to twelve months searching for a suitable replacement. Now weigh that against the cost of providing onboarding support for six to twelve months, and do you still want to throw your newly-onboarded executives in at the proverbial deep end?

We recently wrote a report for anyone who is unclear about what it is that transition advisors do, which you can download from our website, entitled "How Transition Advisors Accelerate Executive Onboarding." It's a good place to start. And if you are serious about wanting to transform your organisation's approach to executive onboarding, read "Our 5 Step Plan to Transform Your Executive Onboarding" news item which is full of resources to help you assess your current onboarding practices and help you turn vicious onboarding cycles into virtuous ones.