Keep Your Edge

  • Compensation

When Retention and Succession Plans Fail – Overpaying for Replacement Talent

on December 04, 2015

When good talent leaves an organization it’s costly, but $82 million*?!

Every HR professional is well aware of the cost impact of replacing an employee. This week we saw another example from pro sports that highlights the cost implications when an organization fails to retain talent, fails to have a succession plan in place, and is forced to recruit new top talent.

The Boston Red Sox… a constant roller-coaster of an organization (86 years of heartache, 3 World Series championships in the past 11 years, and two recent last place finishes) - this past week, recruited and signed David Price, the top free-agent pitcher available for an MLB record-breaking $217 million contract for seven years. Now there is no doubt another organization would have paid similar money for Price based on his skill and previous performance, so many Red Sox fans are rejoicing. Price could be the savior that brings them back to championship contention. 

But just 19 months ago, the Red Sox had a #1 pitcher of their own in Jon Lester. One they had signed young, developed for 10 years, and was a top performer in the league. They had just won their third championship and Lester was the leader of that team. His contract was expiring and he wanted to stay in Boston. So what happened?

The Red Sox lost Jon Lester and had no succession plan in place. They made him a low-ball offer, which he rejected. After trading him to Oakland in 2014 (to get something in return before his contract expired), Lester ultimately signed with the Chicago Cubs when the Red Sox subsequent offer to Lester was still lower. There were no replacements in their organization for Lester, and the Red Sox fell to last place in major league baseball in 2015.

Lessons for HR

  • Compensation has a huge impact on retention. Your top performers typically want to stay, but can often get paid more elsewhere. Pay for performance strategies will retain talent.
  • Top talent WILL leave your organization. Always have a succession plan in place.
  • Talent development investments can avoid catastrophic scenarios.
  • The cost to replace top talent by recruiting externally will inevitably cost exponentially more than retaining high performers.

*$82 million is the difference between the Red Sox best offer to Jon Lester and the contract given to David Price this week.

Keep Your Edge

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