The failure of an executive hire isn’t just a setback—it can be a catastrophic event affecting productivity, strategy, morale, momentum, and reputation. According to a study by the University of South Carolina’s Center for Executive Succession, over 40% of executive hires fail within the first 18 months. The Society of Human Resource Management (SHRM) clocks the cost of an upset and restart at 200% to 400% of the departing executive’s annual salary — and that’s not counting the organizational aftermath that follows.
Consider Starbucks, which has had four different CEOs in five years. The company reportedly paid $21.5 million to outgoing CEO Laxman Narasimhan in 2024, while also paying $95.8 million to incoming CEO Brian Niccol. In 2022, the company paid a $60 million severance to CEO Kevin Johnson. Meanwhile, the company continues to wrestle with declining sales, plummeting employee morale, shaky investor confidence, and growing customer criticism. The revolving door on the C-suite is not helping these efforts.
In this article, we’ll explore the comprehensive costs of executive hiring failures—from direct financial impacts to the often-overlooked strategic, cultural, and reputational consequences that can haunt organizations for years.
Adding up the Direct Financial Costs of a Bad Hire
The financial toll of a failed executive hire starts long before they even walk through the door. In a study of approximately 150 Chief Human Resources Officers, 45% of respondents estimated the direct costs of external failed hires to be between $2 million and $5 million, while another 15% noted an even higher cost, ranging from $5 million to $10 million.
The costs considered in the direct financial impact include:
- Recruitment expenses: Internal time spent on the search, advertising costs, travel and accommodations for candidates, and potentially, executive search firm fees
- Compensation waste: Salary, bonuses, benefits, stock options, and other incentives paid to an underperforming leader
- Onboarding investments: Training, integration programs, and resources devoted to bringing the executive up to speed
- Severance and legal costs: Termination packages, potential litigation expenses, and outplacement services
- Replacement costs: Interim leadership fees and the entire recruitment cycle repeating itself
- Extended impact period: Although failure is typically apparent within 6 to 12 months, executives may remain in the position longer, extending financial damage
The financial impact varies by industry and position level, and whether the new executive was an internal or external hire.
Premature executive departures in technology and healthcare tend to result in greater financial exposure, as these roles often come with expansive compensation packages and complex recruitment processes. Similarly, C-suite positions bring higher direct replacement costs than VP-level or senior leadership roles.
Discovering Hidden Operational Costs
Beyond the noticeable financial impact, operational efficiency suffers significantly during and after a failed executive hire. These costs are more difficult to quantify but often exceed the direct financial losses.
Productivity Paralysis
Productivity plummets during leadership transitions. Continuity is broken, and teams often lack direction. When that executive fails, especially before they have reached full productivity in their tenure, their contribution level is not only stagnant but potentially negative.
Declining Decision Quality
Poor leadership cascades through the organization, eroding team performance and impairing decision quality at multiple levels. The University of South Carolina’s research found that, on average, poor decisions made by an underperforming leader continue to affect an organization for 24 to 36 months.
Leadership Attention Drain
The administrative burden of managing problems created by the wrong hire robs leaders of time and energy that should be dedicated to core business activities. C-suite peers must pick up the slack after a departure, diverting time and energy to correct mistakes, fill performance gaps, and support everyone who is reeling from the impact. This attention drain compounds over time and can have a profoundly negative impact on productivity.
Institutional Memory Loss
Perhaps most damaging is the institutional knowledge gap created when an executive departs, especially when a failed executive hire breaks the continuity bridge between parties. Relationship networks, process documentation, and the smooth transfer of organizational history can vanish in an instant with an unexpected departure. This disruption can undermine momentum and productivity, and is a fundamental reason why every organization must have a detailed and structured onboarding plan that includes archives of institutional knowledge.
Recognizing Strategic Derailment and Lost Opportunities
The trackable loss of dollars and productivity following a bad executive hire is also accompanied by missed opportunities and derailment of strategic objectives. These can be some of the most damaging costs of having the wrong person make executive-level decisions.
Stalled Strategy
Research indicates that mismatched executive appointments can lead to strategic setbacks for up to 18 months post-departure, while companies conduct damage control and address the unexpected vacancy. Important initiatives are paused or abandoned, cutting short a company’s competitive advancement.
Relationship Deterioration
The exit of a failed executive hire can threaten all levels of organizational relationships. From key partners and clients to employees and stakeholders, connections that have been curated and nurtured for years can erode and require rebuilding. Re-establishment of the trust underlying these relationships often requires a significant level of dedication.
Opportunity Lost, Investments Wasted
Poor leadership can misdirect an organization and its resources in a number of ways. From pursuing the wrong strategic direction to squandering resources through failed or abandoned initiatives, a company risks financial waste and lost momentum in the marketplace. Similarly, it is nearly impossible to calculate “what could have been” in terms of the opportunities that were missed during the wasted onboarding, poor management, and restart of the executive search process.
Revealing the Reputational and Cultural Impact
Just as it is difficult to measure the loss of roads not taken, it is challenging to calculate the damage to culture, brand, and market perception when an executive hire goes wrong.
- Internal Culture Erosion: Just as strong leadership inspires teams and sets a positive tone for workplace culture, poor leadership and broken continuity can cause morale and engagement to plummet. A weak organizational culture impacts all other business metrics to some degree, including the ability to attract top executives.
- Employer Brand Damage: High-profile leadership failures and frequent C-suite turnover are signals of instability that reach potential replacement candidates, damaging the employer brand. These perceptions can linger, making it more difficult to secure strong leadership.
- Market Perception Shifts: The reputational damage from leadership deficiencies can alter how a company is viewed, affecting everything from closing deals to securing new partnerships.
- Talent Drain: Top performers are often the first to burn out and leave when executive leadership is lacking or toxic, leading to a talent drain that can take years to recover from. Harvard Business Review notes that it can be less costly to replace a bad leader than repair a workplace that is hollowed of talent.
Effects and Costs of a Bad Hire Compound Over Time
It is especially worth noting that the individual effects of an unsuccessful leadership transition do not exist in isolation. Quite often, they happen together or in succession, compound one another’s impact, and take years to recover from. According to Harvard Business Review, the cumulative cost of a failed executive hire can reach upwards of 10 times the executive’s salary.
Preventing the Costs of Bad Executive Hires
Given these extensive costs, prevention is the most cost-effective approach to executive hiring. A thoughtful, comprehensive hiring strategy and process can greatly reduce the risk of making a poor hiring decision.
| Prevention Strategy | When to Implement | Benefits |
| Comprehensive Assessment Guidelines | During candidate evaluation | Provides objective points Evaluates leadership style and cultural fit Prevents potential blind spots in interviewing |
| Rigorous Reference Verification | Late candidate evaluation stage | Uncovers leadership patterns across contexts Reveals how candidates handle challenges Identifies potential red flags not apparent in interviews |
| Clear Performance Expectations | Before offer and during onboarding | Ensures alignment even before day one Creates an accountability framework Reduces misunderstandings about priorities |
| Effective Exit Interviews | During executive departures | Identifies patterns in rationale for departures Reveals organizational blind spots Improves future hiring criteria |
| Strategic Succession Planning | Ongoing, continuous | Develops an internal pipeline of developing leaders Reduces cultural integration risks Shortens ramp-up time |
| Strategic Onboarding | First 90 days through year one | Accelerates productivity and relationship building Reduces early departure risk by identifying challenges Creates foundation for long-term success |
The Role of Executive Search
While the strategies above are essential components of successful executive hiring, partnering with an experienced executive search firm, like Millman Search, provides professional, comprehensive support throughout the entire executive lifecycle.
The relationship extends far beyond the initial placement, offering continuous expertise during onboarding transitions, leadership development, and future talent planning.
The ongoing partnership allows hiring managers and C-suite peers to remain focused on business while executive recruiters ensure alignment between organizational needs, leadership capabilities, and cultural fit at every stage. The careful and thorough process of an executive search firm can significantly reduce the risks of a costly hiring failure and lay the foundation for sustained leadership success.
Final Thoughts
As if the disappointment and initial investments to hire a mismatched executive weren’t enough, it’s clear that there is much more at stake. Companies incur financial, operational, strategic, and cultural damage that can take years to recover from. For hiring managers, understanding the full range of direct and indirect costs underscores the importance of getting executive selection right.
In today’s competitive and unpredictable markets, leadership quality often separates thriving organizations from struggling ones. Investing in thorough executive search and selection processes is more than a recruitment expense—it’s strategic risk management with long-lasting returns.
FAQs
What percentage of executive hires fail?
According to research from the University of South Carolina, approximately 40% of external executive hires fail within the first 18 months of their tenure. Internal promotions fare slightly better with failure rates around 30%, though studies vary on exact percentages.
How long does it typically take to identify a bad executive hire?
Warning signs typically emerge within the first six months to a year; however, recognition of the problem does not always lead to immediate action. According to the University of South Carolina’s Center for Executive Succession, even after failure becomes apparent, organizations often keep underperforming executives in position for over two years.
What is the difference in cost between bad hires at different executive levels?
C-suite failures are significantly more expensive than those at lower executive levels, with costs ranging from 2 to 5 times the annual salary for VP positions to up to 10 times the annual salary for CEO positions. This escalation reflects wider organizational impact, higher compensation packages, and greater strategic influence.
