When an owner is weighing a senior hire, the conversation is usually about the salary.
Can we afford it. What is the package. What does the market pay. These are reasonable questions, and they are the wrong place to start.
The salary is not the cost. The salary is the visible piece of a much larger commitment, and owners who only weigh the salary tend to be the ones who are surprised, eighteen months later, by the financial shape the business has taken on.
Here is what a senior hire actually costs.
The salary, obviously. Let us say one hundred and fifty thousand a year, fully loaded with KiwiSaver, ACC, leave, and the other on-costs. That is the line item.
Then there is the lag. A senior person does not contribute at full capacity from week one. They need to learn the business, build relationships with the team and customers, understand the systems, and develop judgment about what matters and what does not. In most businesses, this takes between six and twelve months. During that period, the salary is being paid but the contribution is partial. That lag is usually somewhere between fifty and eighty thousand of cost without matched output, and it does not show up in any forecast.
Then there is the shift in fixed costs. Adding a senior person changes the structural shape of the business. The fixed cost base has gone up. Whatever flex existed in the cost structure has been reduced. The business now needs to do more revenue to sit where it was sitting before, and the senior person needs to be generating that additional revenue, or saving costs equal to it, or freeing the owner up to generate it. If none of those things happen, the margin has been quietly compressed for as long as the senior person is in the role.
Then there is the management cost. A senior person needs to be managed differently than a junior. They need clear scope, real authority, regular conversation, and someone they can take their harder questions to. In a business where the owner is already stretched, this additional layer of management often falls back on the owner, which means the hire that was supposed to free the owner up is now taking more of the owner’s time than they expected.
Then there is the structural commitment. A senior person at this level cannot be exited easily. There is no quiet probation. If the hire is wrong, the cost of unwinding it is significant, in money and in disruption to the team. The decision is closer to a marriage than a contract. Most owners are weighing it like a contract.
When you add all of these up, the real cost of a senior hire in the first three years is usually somewhere between two and three times the salary, depending on how the business absorbs the change. The hire that looked like a hundred and fifty thousand a year is closer to four hundred thousand of total commitment over the first three years before the business sees the matching contribution.
This is not an argument against senior hires. The right senior hire, made for the right reason, is one of the most valuable moves an owner can make. The argument is that the decision deserves to be weighed properly, with the full cost on the table, and with a clear view of how the business is going to absorb it.
Most senior hires that go wrong are not wrong because the person was wrong. They are wrong because the decision was weighed against the salary, not against the actual commitment, and the business was not structurally ready for what the hire required.
If you are about to make a senior hire, the question worth sitting with is not whether the person is right. It is whether the business is ready to absorb what the hire actually costs.
The hire that costs you twice is the one that was weighed once.
Murray.
