A Cost Comparison: Fractional Leaders vs. Full-Time Execs
Most organizations understand the value of having a leader in an executive role to guide their business, but it's not always financially feasible, there may not always be a full time need, or some struggle to find the right person. As a result, fractional leadership has become increasingly popular as an alternative means to leveraging executive level talent.
As a reminder from our last post, the benefits of hiring a fractional are the flexibility it offers in terms of time commitment and the ability to access talented leaders at a fraction of the cost. Additionally, working with fractionals does not require businesses to make significant investments in infrastructure or resources—the professional provides all necessary tools and resources themselves.
Since this is an emerging and growing concept, I was eager to explore the cost of a FTE (full-time employee) compensation plan, in comparisons to fractional monthly retainers. The data is eye opening to say the least!
According to data gathered (March 2023) by Salary.com, the median (50th percentile) core compensation (salary+benefits*) for the following C-Suite leaders is as follows:
Chief Financial Officer (CFO)- $558,999 ($46,583/mo) + 22% bonus
Chief Operating Officer (COO)- $622,672 ($51,889/mo) + 23% bonus
Chief Marketing Officer (CMO)- $464,651 ($38,720/mo) + 25% bonus
Chief Revenue Officer (CRO)- $408,619 ($34,051/mo) + 12% bonus
Chief Technology Officer (CTO)- $387,001 ($32,250/mo) + 15% bonus
Chief Human Resources Officer (CHRO)- $449,340 ($37,445/mo) + 25% bonus
NEWER-Chief Talent Officer (CTAO)- $337,197 ($28,099/mo) + 20% bonus
*For the full cost breakdowns, including salary + benefits + bonus, click each roles hyperlink. Bonus comp and equity cash totals were left out of this comparison, since both are variable compensation, not always guaranteed. Average % offered were noted instead.
What is the average monthly retainer for a fractional executive?
The average monthly retainer for fractional executives starts at around $5,000 and goes upwards to $15,000 per month. Retainers vary depending on the experience, scope of work, and level of hourly commitment per month (ie. 25%, 50%, or 75% commitment to the team/company). The retainer may be higher if the professional has more years of experience, is in high demand, or if the organization is located in a major metropolitan area.
What is the arrangement?
Fractional executives typically invest 40-60 hours per month with each client that they provide services for. This time commitment is tailored to the specific needs of the client, allowing for more or less time as needed. Factional executives spend their weeks working directly with each client as part of the team, while also taking care of behind the scenes tasks, like building operational efficiencies, strategic planning, creating presentations, managing projects, doing research and analysis, and handling communications. Depending on the complexity of the project at hand, they may spend additional time refining their plans and strategies in order to optimize results.
Overall, businesses that need executive level expertise but lack the resources or willingness to hire full-time employees often benefit from fractional leadership solutions as they provide access to experienced professionals at significantly reduced rates while still offering customizable solutions tailored specifically towards client needs.