Just How Much Can a Single Bad Hire Cost You?
Most managers underestimate the cost of a bad hire because a single bad hire can cost you in so many unexpected ways. If managers knew a little more about the horror that a bad hire can bring, you can be sure they'd think twice when hiring. Most people would estimate a bad hire to cost them a few thousand dollars. But when I added up the numbers I was surprised at how much a bad hire costs you.
Besides creating headaches for management and HR, hiring the "wrong" employee is an endless source of havoc:
- Losing customers;
- Costs of repeated work which lost time you will never get back and;
- Pressures on other employees who must pick up the slack.
But the costs of a bad hire don't end there.
"As a business owner or manager, you know that hiring the wrong person is the most costly mistake you can make." - Brian Tracy
What do the Numbers Say?
To try and put a quantifiable cost on bad hires I got out my calculator. Warning may contain maths and scary stories...
Costs of a Bad Hire can Include:
- Wasted salary 1 to 6 months, 8.5% - 50% (As a percentage of annual salary);
- Recruitment costs and time, 5% - 40%;
- Training costs (and time), 5% - 20%;
- Impact on rest of team 5% - 50% and;
- Missed/ delayed business deliverables. 0% - ?
So the total cost of a bad hire is a minimum of 25% of their salary but could be over one and a half times their annual cost. For example, say you are hiring an $80k role – the cost of the bad hire would range between $20k to over $120k.
What do CEO's Think Bad Hires Have Cost Them?
Tony Hsieh, CEO of Zappos, understands the costs of a bad hire all too well. He once estimated that his own bad hires have cost the company well over $100 million. (That’s part of the reason he now offers new hires a $3000 bonus to quit after their first week on the job.) To read more about the interview techniques that Zappos uses to prevent bad hires and hire for culture fit, see the article: Zappos on Hiring – The Bizarre things they do.
And the horror story doesn’t end there. Someone else who has had to bear the brunt of the outrageous costs associated with a bad hire is Yahoo CEO Marissa Meyer. After just 15 months she was forced to oust COO Henrique De Castro at a severance cost of $109 Million! That’s an impressive number for a single bad hiring mistake. Read More Here
Why do Companies Hire the Wrong People?
Hiring isn’t easy and there are so many contributing factors:
- Evaluating job candidates is tricky – someone who looks good on paper may not be good in practice;
- Hiring is a manager skill. Most managers don’t get practice often enough to get better at it;
- Hiring is a time-limited process. Often a position needs to be filled quickly and quality is sacrificed for speed;
- Without a good recruitment process hiring needs aren't well defined or tested against.
A recent survey by Robert Half showed that of 1,400 executives surveyed felt the top factor leading to a bad hire, besides poor employee performance are:
- Poor Skills Match (36%);
- Unclear Performance Objectives (30%);
- Personality Mismatches (17%);
- Corporate Culture Mismatch (14%)
This means that it’s most important to motivate employees (or at least hire employees who are self motivated). But almost as important is:
1) To match candidates skills to the job. And,
2) Ensure new hires integrate with the team.
“Companies can’t afford hiring mistakes, which are costly and can erode staff morale,” said Max Messmer, chairman and CEO of Robert Half International and author of the Human Resources Kit for Dummies. “Finding the right match requires time and attention, and it’s something even busy managers need to make time for.”
How Common are Bad Hires?
The usual estimate is around one in ten new hires turns out to be a bad hire. But not every bad hire is obviously a horror story – around half of new hires don’t meet the hiring managers expectations. If you think about it, every employee was hired at some point. So every employee performance problem can be connected back to a hiring mistake.
How Can Companies Get Better at Hiring?
Considering the reasons why companies hire the wrong people, getting better at hiring requires:
- Improved Manager Skills - managers to improve their hiring skills;
- Better definition of job skills requirements;
- Methodology to evaluate job candidates against skills requirements and;
- A solid recruitment process.
That's why I've made the www.boss.camp program. It shows you how to improve employee performance in just an hour a week, including how to hire the best employees for the job.
If you’re a manager with the world on your shoulders. If you’re working long hours to bridge the gap between expectations and employee performance you might be suffering from a case of “bad hires”. Making a bad hire won’t just ruin your day it could ruin your company.
Is there anything you do to avoid bad hires - what are your best tips to get the best employees? Help the rest of us out by sharing in the comments below.
SIDE NOTE TO MANAGERS
ARE YOU HIRING TO REPLACE A BAD EMPLOYEE?
Here's some food for thought. Hiring is a costly process. There are obvious costs like recruitment fees. But add in manager time, training and waiting for the employee to get up to speed and it’s not far off an annual salary. Ditto when things go wrong. The total cost of a bad hire is a minimum of 25% of their salary but could be over one and a half times their annual cost. So is it worth the time, pain and cost of hiring someone new to replace your bad employee? What if I told you that there is an easy and time-efficient management technique that you can use to engage your employees, improve productivity and make managing easy.
SPECIAL MENTION ABOUT ONE-ON-ONE MEETINGS
Do you know that regular, high quality one-on-ones with your employees are the single easiest management practice. Do one-on-ones right and not only can you can take care of almost all your management responsibilities in one go but you will also:
- Improve employee engagement,
- Boost productivity,
- Build better relationships with your staff.
That's why I made a mini-course on one-on-ones (including a one-on-one template with a one-on-one meeting agenda) which will show you 3 Easy Steps 2 1 on 1's. What I expect you'll find is that you already know some of the content on some type of level but maybe you're not putting it into practice. This will help. As I say this is essential for new managers and helpful for experienced managers.
The Hiring and Interviewing Series
This is part of the Interviewing and Hiring Series. This series covers how managers can increase employee performance through hiring better employees. And how managers can avoid common hiring mistakes.
Topics in the Series Include:
Other Relevant Resources:
Power Interview Pack: The complete set of interview questions to get the best candidate for the job. Increase employee performance through hiring the best staff and avoiding bad hires. Link here.
Hiring for Performance: How to hire the best employees and improve employee performance, engagement and retention. Link here.
Employee Onboarding for Performance: If employee onboarding goes wrong, your new hire may leave you in the lurch or become a demotivated low performer. But motivate and integrate your new hire well and you will have a happy, productive team member. Link here.
Evaluating and Testing Job Candidates - How to Spot a Bad Hire
Research says that the 6 most common characteristics of bad hires are the following:
- Failure to produce the proper quality of work 63%
- Failure to meet deadlines 48%
- Failure to work well with other employees 63%
- Negative attitude 62%
- Immediate attendance problems 56%
- Employee caused customer complaints 49%
Therefore avoiding a bad hire consists of specifically testing candidates for these items. In fact, it’s so important that I’ve developed a set of interview questions designed to test for these characteristics.
The Interview Questions to Avoid Bad Hires Guide Will:
- Identify characteristics of bad hires;
- Provide interview questions to ask candidates and a method to assess their responses.
Click here to download the Free Manager Foundation Interview Questions to Avoid Bad Hires…
Incorporating interview questions to avoid bad hires into your interview technique will reduce the risk of a bad hire. And when you start making good hires, you:
- Increase employee engagement because your new hires are enthusiastic and motivated to do the job;
- Increase employee performance and employee productivity because your new hires have the right skills and competencies to do the job;
- Increase staff retention because your new hires are a good job fit.
Do you know that the research says that in a team of ten staff:
- 2 are totally disengaged, which are bad apples, destroying value,
- 4 are partially disengaged, only staying for what they can get,
- 2 are partially engaged which is making a contribution but not putting their best foot forward, and,
- Only 2 are fully engaged, which is enthusiastically supporting the mission of the company.
That’s not just an average but a typical team. So what does your team look like? Do you have bad apples ruining your day? Get more good apples at WWW.BOSS.CAMP. The program includes topics such as:
- How to hire for performance,
- How to motivate employees,
- What are bad employee motivators,
- What you must do as a manager but isn't on your job description,
- How leaders get power.