Fact Check: The Cost of Poor Leadership

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Poor leadership can cost companies thousands to millions of dollars per year, depending on the size of the organization. Collectively in the United States alone, businesses are losing trillions of dollars per year as a result of voluntary turnover and inability to hire qualified talent due to poor brand reputation.

Wade Burgess, entrepreneur, Chief Revenue Officer at Rev.com, and former VP of Talent Solutions at LinkedIn, wrote a 2016 blog that broke down just how expensive this can be. He found that:

  • The cost of a bad reputation for a company with 10,000 employees could be as much as $7.6 million in additional wages. This is based on the average U.S. salary being $47,230 (according to BLS), assumed annual turnover of 16.4%, and a minimum 10% pay raise.
  • Employers who fail to invest in their reputation could be paying up to an additional $4,723 per employee hired.
  • Nearly half of U.S. professionals would entirely rule out taking a job with a company that exhibited the top three negative employer brand factors (1. Concerns about job security; 2. Dysfunctional teams; and 3. Poor leadership), no matter what pay raise they were offered.
  • Even a pay raise of 10% would only tempt 28% of employees to sign on the dotted line.

Leadership isn’t something that just happens. When evaluating employees for promotion, companies and human resources departments need to consider all qualifying factors before placing people in positions of leadership. Leading a team but not having relevant leadership skills can be detrimental to the success of the newly promoted employee, their team, and the reputation of the company. When employees are unhappy and unable to achieve their desired levels of success, they walk. Turnover costs can range between one-half to twice an employee’s salary. If that weren’t enough, poor leadership can also push your brightest minds out of the door, taking with them innovation, ideas, creativity, and potentially great future leadership. Poor leaders cause team and employee morale to be disrupted, leading to reduced productivity and depending on the severity of employee dissatisfaction, revenue can suffer from poor customer service and brand reputation can be damaged by exiting, disloyal employees. Gallup says that, “Fifty-two percent of voluntarily exiting employees say their manager or organization could have done something to prevent them from leaving their job.” Poor leadership (just like great leadership) is a process; once an employee is on the path of poor leadership, they will stay there until they are educated otherwise. It isn’t a personal problem; it is an organizational failure and companies need to step up and proactively equip their leaders with the skillset.

Poor leaders can often be spotted by their daily interactions with their teams and other employees. They may have an abrasive or abusive management style that is toxic to company culture. They often fail to engage employees and cannot accept feedback or criticism without taking everything negatively. They either don’t know how or choose not to coach or mentor employees and they don’t know when or how to ask for help. These types of leaders may be new, inexperienced, or come from poorly trained managers themselves so it is incumbent upon companies and organizations to provide leadership training to ensure the future of the company and its employees.

According to Forbes, poor leadership has resulted in:

  • Only 30% of employees strongly agreeing that their manager involves them in goal setting
  • Only 2 in 10 employees strongly agreeing that their performance is managed in a way that motivates them to do outstanding work
  • Only 21% of employees strongly agreeing that they have performance metrics that are within their control
  • Over half of exiting employees saying that in the three months before they left, neither their manager nor any other leader spoke with them about their job satisfaction or future within the organization
  • Poor leadership being the single greatest cause for employee disengagement and absenteeism

Once companies and organizations begin to spot signs of poor leadership, they should step in and take action before any further damage is done. Company leaders need to keep an eye on and assist new or inexperienced leaders as they often need guidance and support to make the most effective and thoughtful decisions. New leaders shouldn’t be left to create their own path; they need to have one laid for them and have someone walk it with them. There is value in good relationships. Strong leaders will learn what is important to employees through profound and regular conversations. They will find out what drives employees, what frustrates them, and what their goals and aspirations are. Conversely, poor leaders don’t pave the way for companies to capitalize from good relationships because they fail to see the value in them. When companies invest in the development of their leaders, those leaders invest in the financial stability of the company’s future, too. If you’re facing poor leadership challenges within your company or organization, it’s time for a change.

Want to know how much poor leadership is costing you each year? Download our comprehensive Turnover Cost Calculator to see how much poor leadership costs your company or organization.