A Cost Comparison: Fractional Leaders vs. Full-Time Execs (Natalie Stones)

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.

Comments

  1. Fractional executives are a very cost -effective solution as this post points out. I have been in a fractional CFO role for over a decade (when I started there was not a fractional title and the word consultant was the nomenclature). This role is particularly beneficial to early- stage companies but full- time executives at start- ups do not earn the level of compensation referenced by Salary.com and are granted stock options which could produce a large upside. However, there is still a very compelling cost advantage as well and the skill set needed at an early stage start up is someone who is more hands-on as there is no staff at this stage. The time dedicated each month by the fractional CXO will depend on the stage of the company and will grow over time until there is a point where it makes sense to engage a full time executive. The fractional CXO will have established a strong foundation so that the full time CXO will be able to take hit the ground running and take the company to the next level. The presence of a competent fractional CXO also allows the company to take the time to find the right full-time leader.

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