TL;DR The negative impact and cost of losing a good engineering leader and manager.
I would argue that the cost of losing a genuinely outstanding leader can easily reach £170–500k. It’s way more than the roughly estimated 50k I’ve often heard about. However, after I wrote this post, these numbers still feel like an underestimation in some cases, but it is impossible to tell since there are so many variables I simply can’t take into account.
It’s hard to measure the impact as almost no cost is visible straight away, or it’s hidden behind other data. Furthermore, it is challenging to predict the long-term implications, especially since we don’t know how long a company will be forced to look for a new person. Hiring a suitable replacement is not easy, and it might take months, even a year. During that time, the team’s work quality will degrade and likely affect productivity due to unmaintained external factors. The worst part is that when a company lose a good leader, they should also expect to lose someone else — the followers who will go with them to the end of the earth, or at least to another workplace.
Good leader? Who are we talking about?
I wrote quite a bit on this topic in some of my previous posts, but I will explain quickly who a good leader is.
TL;DR: What leadership is and what it’s not. The good and the bad.
People often think that being in a leadership position means a comfy seat, big salary and giving orders. And it’s far…
A good leader is a person who takes full responsibility for his work and genuinely cares about the people he works for — his team. He knows how to build bonds, trust and honest communication, and people follow him not because they have to but because they want to. Unfortunately, most (and I really mean most) managers are only just that — managers. It’s hard to find true leaders who have followers and can develop other leaders without a formal rank or position. Someone who gives a shit and always do the right thing, despite the unhealthy and unsupportive environment he might be at. A good leader is responsible for 75% of the team’s happiness. He is the person who can transform the worst situations and events from around the company into learning opportunities and incredible challenges that the team will be excited to face together.
“There are only two types of leaders. Effective and ineffective.” — Jocko Willink
Maybe you heard about the myth of 10X Developers who are so productive that they deliver as much as ten times more than regular devs. A great engineering leader is definitely not a 10X Employee. Still, the impact and actions he creates can increase productivity and quality of work within a team by 50%. Assuming our imaginary team is 8 people, that really translates to numbers, serious numbers.
So how about the cost when we lose such a person?
There are many aspects to consider when a company loses a valuable person. Yet, most of them are often missed, and it’s usually because the fallout does not have an imidate impact and a lot depend on how soon we will find a suitable replacement.
Assumptions & facts
- The average salary for a lead engineer/engineering manager/head of engineering in the London area is around 100–130k annually. I will use these numbers as a base for all calculations here.
- Companies often look for an appropriate candidate for months, easily half-year, occasionally a year!
- For the purpose of these calculations, our imaginary team has 8 people.
Notice period waste
A good leader is very likely prepared for the process of leaving a company, and there is little knowledge they need to pass to another person. It is not uncommon for the most senior positions to have 3-month notice, which I consider one of the most ridiculous ideas ever. A person who wants to leave want to do it fast and has already disconnected from the job. In 99% of cases, a good leader should be capable of going within a month, which means they are forced to waste two months of their time and the company’s salary, and that’s somewhere between £16–22k.
New hire cost.
Let’s assume the worst-case scenario that a company can’t find a replacement on their own without the help of external agencies and headhunters. On average, an agency will charge 15–20% of the annual salary for these positions. That will be around £15–26k.
When a new person joins, it’s hard to say how fast he adapts to the new environment. Assuming we found “another amazing leader”, he should fully contribute and add value after the first month, during which he will need help. That’s not that bad, and the cost would be around £10–15k.
It’s hard to calculate how much workload a leaving leader will generate for the team, but it’s not “none”. Likely, his team is also good, so they can cope for a while on their own, but will have to deal with the extra work (a temporary boss rarely helps!). As we know, it might take 3–12 months to find a replacement, and during this time, less experienced people will have to deal with extra challenges and more work. The cost is estimated based on the leader’s salary and months we have to wait for the new one to join and fully adapt, which will be between 33k-140k. So finding a replacement fast should be a critical topic for a company.
More people are leaving!
That’s the worst part almost no one thinks about. When we lose an excellent manager, and the company is struggling with a lousy culture & politics, more team members will leave, often following their great boss to his new workplace. The only reason some people stayed for that long so far is that they had an incredible leader who could turn bad situations into bearable. The “side effect leavers” can easily reach 10% of the team size, but I saw 30% once. In our small imaginary team, that would translate roughly to an extra £100–350k.
Ps. Do you know what happens when a great engineering director leaves a team of 60, and then 30% quit soon after? :) Havoc!
Intangible losses of losing a good person
Treating an employee as cost sucks, but it’s easier to present the problem as numbers to simplify the impact. Numbers really stand out.
Whenever a good employee leaves, regardless of position, companies lose more than just money. Knowledge is often gone since many companies don’t like writing documentation for their projects, processes and ideas. How often we hear that “Ohh, if you want to know more about ProjectX, you need to ask Bob, he spent all his life here building it and maintaining, he knows everything”. Yeah.. better don’t lose Bob now, it’s all in his head.
The highest cost comes to the team as they will be forced to get to know their new manager through a stressful period. In addition, their careers will take a hit as previously prepared development plans will likely never pick up again. It’s a long process of learning to work together, and if the team is tightly knit, a new leader may have a hard time gaining their trust and becoming “one of them”.
Whenever a person is leaving, it affects the team’s morale and creates extra workload and overhead. Of course, it is sometimes an opportunity for others to step up, but it’s still a sad moment.
Total cost of losing a good leader and manager
- Notice period — £16–22k
- New hire — £15–26k
- New joiner —£ 8–11k
- Workload impact— £33–140k
- Total — £72k–200k
- When we lose two extra team members as a side effect of a good leader leaving the company, the total might be even £172–550k
Of course, these are just rough numbers. From one side, they seem high. I couldn’t believe it until I calculated it. From the other side, I know what immerse value a good leader brings is to an organisation, projects and people around them. It’s not only about one individual anymore.
I really have to clarify that we are talking about the Really Good Software Engineering Leader, not average, not a good one, but the Really Good one. There are so many variables I didn’t consider here, like company culture, maturity, team age, experience, flexibility, industry, type of work, and a lot more. All these variables will impact the final costs, and my estimations are not accurate, but neither are unrealistic.
Ps. the cost will be even higher if he gets replaced by a bad leader, but I guess that’s a topic for another post — “The cost and impact of keeping a lousy manager”. It would probably also make sense to cover the subject of “How to keep a good leader” in the future.