The (True) Cost of a Bad Hire
It’s almost inevitable that at one time or another a company’s on-boarding process, even within an abundance of good intention, resource and research, will allow a bad hire to sneak through the cracks.
What are the true costs associated with having to deal with this disappointing, new employee?
The financial cost of a bad hire can run a few hundred, to hundreds of thousands of dollars and with The U.S. Department of Labor pinning the price of a bad hire at around 30% of that employee’s first year’s earnings, it’s easy to see how quickly the costs of a bad hire can add up. In fact, when Zappos discovered that they were spending upwards of $100 million on bad hires, they actually began offering $3,000 separation bonuses to new employees should things go south in the first few months.
Hopefully, separation bonuses won’t have to be part of your company’s bottom line but even the best of organizations experience bad hires. In fact, according to a survey conducted by Glassdoor and Brandon Hall Group, 95% of employers suffer from a bad hire every year.
Key findings from that report include:
· Organizations that lack a standard interview process are five times as likely to make a bad hire.
· Organizations that invest in a strong candidate experience improve their quality of hires by 70%.
· Organizations that invest in employer branding are three times more likely to make a quality hire.
The most common reasons why bad hires sneak through the process include:
· Rushed processes: companies needing to fill their positions ASAP.
· Insufficient research and poor sourcing.
· Inadequate references and background checks.
· Weak employer branding and lack of cultural education.
A bad hire can quickly make their mark on their new company:
· Loss of Productivity: Poor job performance directly affects bottom line company productivity. Also; consider the missed revenue and productivity opportunities that may never present themselves, due to underperformance or vacancies.
· Relocation & Turn-over Fees: Incurring replacement and possible relocation costs, especially if the company has to replace the bad employee with a newly relocated one.
· Litigation Fees. Hopefully the bad hire doesn’t become worse, but a company needs to be prepared as many states are very pro-employee.
· Weakened Employer Brand: A poor hire can also directly affect your company’s brand in various negative and public ways, notwithstanding having to re-hire any high-visibility positions in a short period of time.
· Loss of Customers: A bad apple can quickly turn even the most loyal of customers off a brand.
But perhaps the truest measure of a bad hire is in the fact that one underperforming or toxic employee can act as a contagion infecting the entire workplace. Here, concrete reporting of the ill-effects of a bad employee are difficult to quantify but quick to impact. Other employees may find their productivity faltering due to the fact they are faced with picking up the bad hire’s slack. Office moral suffers. Brand culture is dinged. Sometimes, the bad hire can introduce caustic effects to the office place; including bullying, in-fighting, time-wasting, name calling, etc. Any or all of these behaviors will quickly degrade a company’s culture for every employee across the board. Thus, the true cost of a bad hire goes beyond the loss of revenue, opportunity and loyal customers, to quickly become a voraciously mutating virus that when left unabated, can quickly take down the entire ship. Bad hires, although common, must be avoided at all costs.
Although companies face upfront expense in terms of time and money while onboarding new employees, we can see from the many debilitating effects of a bad hire that this upfront effort is more than worth it. A surefire way to avoid bad hires is to tap an experienced and trusted external recruitment firm from the get-go. Examples of such firms are the rapidly growing Tri-Search for their coveted customized project recruiting process, PeopleScout operating within the RPO sector or Morgan Samuels operating within the executive search space.
Perhaps Steve Jobs said it best-- "The secret of my success is that we have gone to exceptional lengths to hire the best people in the world."
Here’s to happy (good) hiring.