The Real Cost of Leadership Development? Zero.

When a client recently challenged us to justify their leadership development investment with hard data, we welcomed the conversation. In an era of rising costs and budget scrutiny, every program should prove its worth. What the numbers revealed surprised even us: effective leadership development doesn’t cost money—it saves it.

The Rising Tide

This organization had invested in developing leaders for over a decade. When we divided participants into cohorts spanning three-year periods and tracked their effectiveness over time, we discovered something remarkable: a steady, measurable increase in leadership capability across the entire organization.

As can be seen from the graph below, there is a steady increase in the effectiveness of leaders over time.

Why this continuous improvement? Our Harvard Business Review research on “The Trickle-Down Effect” provides the beginning of the answer. Leaders at the 90th percentile develop direct reports who score significantly above average, while those at the 10th percentile create teams that mirror their own ineffectiveness. Leadership quality cascades—for better or worse. It also extends and radiates upward and sideways. As this organization improved its leadership bench, that excellence multiplied throughout every level. The rising tide of effective leaders lifted all boats.

Four Ways Great Leaders Pay for Themselves

1. The Engagement Premium

Among 968 managers in our study, the impact was striking. Looking at data from this organization, we measured the engagement level of direct reports and found a dramatic pattern.

In the graph below, we show evidence that leaders who were rated in the top 10% based on their leadership effectiveness had direct reports’ engagement scores at the 86th percentile. Leaders in the bottom 10% had direct reports with engagement scores at the 36th percentile.

2. The Retention Multiplier

The old adage holds true: people don’t quit companies, they quit bosses. We asked direct reports of the 968 managers if they were “thinking about quitting and going to another organization.” The results were stunning.

Leaders whose effectiveness score was in the bottom 10% had 35% of their employees considering leaving. Leaders in the top 10% had only 7%—a five-fold difference.

With replacement costs typically at 50-200% of an employee’s annual salary depending on role complexity and seniority, these numbers matter tremendously. When people leave, there’s often a productivity decrease where it takes the new hire 6-12 months to ramp up. The total cost of turnover often reaches 1.5-2 times the departing employee’s salary when all factors are considered.

A single poor leader can cost an organization hundreds of thousands of dollars annually in unnecessary turnover alone. One improved leader funds an entire development program.

3. The Discretionary Effort Gap

Most people, when asked about their experience working for a bad boss, will describe their loss of enthusiasm and desire to do less. In our assessment, we measured discretionary effort and found the most startling pattern yet.

For poor leaders (those in the bottom 10%), only 18% of their employees were willing to give extra effort. But for the best leaders, 71% indicated they were willing to go the extra mile.

Think about what this means. The same employee, doing the same job, might contribute 20-40% more productivity simply because of who manages them. Research suggests discretionary effort can account for a substantial portion of productivity variation between organizations. Studies indicate that engaged employees who exercise discretionary effort can be 20-40% more productive than those doing only what’s required.

This shows up in faster project completion, higher quality outputs, creative problem-solving, and willingness to tackle difficult challenges. The consensus is that discretionary effort represents a significant untapped resource in most organizations, with high-performing companies typically securing substantially more of it from their workforce.

4. The Culture Compound Effect

Beyond the spreadsheet, great leadership creates gravitational pull. It builds organizations that people want to join and refuse to leave. It transforms your employer brand from an expense into an asset. The best talent seeks out great leaders, and mediocre performers either elevate or self-select out.

The Real Question

When you calculate the actual return—higher engagement driving 20-25% profitability gains, turnover reduction saving 1.5-2x salaries per retained employee, and 20-40% productivity increases from discretionary effort—leadership development doesn’t just pay for itself. It generates substantial returns.

But here’s the question that matters more: Can you afford not to invest?

Every day you delay, poor leaders are actively destroying value. They’re demotivating your best people, driving away talent, and leaving discretionary effort untapped.

The Bottom Line

When you weigh the cost of leadership development against the outcomes associated with better leadership, it becomes obvious that the positive outcomes far outweigh the costs. But beyond the cost, organizations with better leaders create a culture and environment that people want to join and stay with for their working life.

Effective leadership development isn’t an expense to be justified—it’s one of the most profitable decisions you can make.

-Joe Folkman

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