Bad Hiring Costs – By the Numbers

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Given the perceived labor or talent shortage, the pressure is on for HR and recruitment professionals to make the best hire possible 100 percent of the time.  Doing anything less can cost the company in a multitude of ways.

 

  • Monetary
  • Motivation
  • Productivity
  • Reputation

The Cost of a Bad Hire

The Statistics

Monetary

HR professionals or those in recruitment who go to Google and type in to the search engine keywords related to the cost of a bad hire will see a plethora of results.  Some of the data will be old and some new.  Regardless, the information points to one big conclusion:  companies who make bad hires suffer as a result.

Some key statistics to observe include:

  • The U.S. Department of Labor says the cost of a bad hire can reach up to 30 percent of the employee’s first-year earnings.
  • The Undercover Recruiter reports bad hires can cost $240,000 in expenses. Those are broken down into costs related to hiring, pay and retention.
  • CareerBuilder says 74 percent of companies who made a poor hire lost an average of $14,900 per poor hire.

There are some additional items to consider.  In her piece entitled What’s the Real Cost of a Bad Hire? – Rebekah Cardenas said, “One would expect that organizations systematically gather data that allows them to calculate how costly a bad hire can be. In reality, this is seldom the case.”

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Additionally she pointed out three rules to consider when trying to determine cost of a poor hire within an organization.

  • The higher the position within the organization (and thus higher the salary), the higher the cost of the bad hire
  • The longer the ill-placed person has worked at the organization, the higher the cost of the bad hire.
  • The more training wasted on the person, the higher the cost of the bad hire.

Motivation

There are other forms of loss that can be associated with a bad hiring decision according to People Matters.  For instance:  motivation.  How so?  A bad hire can have a negative impact on co-workers and the team as a whole.  If the bad hire is in a leadership position, the impact can be much worse.  Direct reports will start to resent the leader.  Eventually, those employees who have proven to be some of the best workers/high performers will start to disengage from the team and the organization.  Self-motivation often relies on environmental factors.  If the environment is negative, it can be very difficult to be motivated at work.

Productivity

Motivation can directly impact the productivity of an employee or team.  A bad hire, in most cases, can make it difficult for a team to meet their goals.  That’s because a co-worker or team will be hesitant to work with the bad hire and vice versa.  The bad hire simply may not want to work with the other team members and thus will do whatever is needed to get out of the work.

Reputation

It’s difficult to weigh which particular loss yields a higher negative impact on the company.  That said, reputation is probably the more difficult one to overcome.  In the internet age, job seekers are accustomed to looking at websites that offer employee-led company ratings and/or anonymous feedback sites.  A bad hire can sew discontent from these websites.  Candidates researching particular companies where this has taken place may move away from the organization.  And it’s not just job seekers.  Current employees often review these websites as well.  Those employees could begin to develop negative feelings about the organization and may begin to distance themselves and, ultimately, look for a new company for which to work.

Rebuilding a company reputation under these circumstances can be an uphill battle.

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Recovery

The reality is every HR professional or recruitment leader will make a bad hire at some point in their career.  How does the company recover from that particular situation?  For that we turn to Liz Kislik’s article for the Harvard Business Review.  She lays out four specific actions.

  1. Have the difficult conversation. HR will have to address the issue with the bad hire and be open to finding ways to resolve it.
  2. Attempt to repair the situation. This includes feedback for the poor hire and maybe even reassignment.
  3. Create an expense pros and cons list of keeping the hire in place. How much does the company stand to lose or gain from the hire’s continued employment?
  4. Potential for termination. This is where HR must decide if the relationship between the bad hire and the organization can be saved.  If not, termination is warranted.

In summation

No one wants a bad hire, especially when offering someone a job is such a momentous occasion for the organization and the employee.  The way forward is really about where the focus lies when hiring anyone for any position.  HR or hiring managers need to focus less on college degrees and experience and focus more on ‘fit’.  Does the candidate have the qualities the organization is looking for and does he or she embody the company culture and values?  When hiring from that perspective, HR will see fewer poor hires and more brilliant ones.

 

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