The cost and impact of bad hiring choices
One of my recent search assignments was to find a replacement for someone who was about to be fired from their position. In talking with the hiring authority to gather the information I needed to present the most qualified candidates we talked about why this person was being let go. The VP told me it “wasn’t what he did”. The incumbent satisfied the basic requirements of the position and was a generally well liked person. It was more a matter of what he didn’t do. He was average in most performance measurements and could have done much more to help his part of the organization move forward to meet the established goals. This company realized that while they had a likeable person who was capable of producing in the role, they were being impacted in subtle less measurable, yet, very critical ways.
While there are many ways a poor hiring decision impacts a firm here are a few key ones and the serious rippling effects they can have on everyone in the organization.
It’s also important not to forget that bad hiring decisions do happen from time to time.
Let’s Take a Closer Look at Some of the Business Impacts of a Poor Hiring Choice
• Lost productivity — a new hire that is in the bottom quarter of employees in a position can produce between 25% and 600% less than a top performer. The quality of their work may even be lower than the volume of their output.
• Reduced revenue — if the new hire happens to be in a revenue-generating or revenue-impact position, the loss of revenue can be significant.
• Customer retention rates — customers know when they are dealing with a weak employee, so hiring a subpar employee into a role that interfaces with customers can measurably reduce sales, customer satisfaction, and increase customer turnover.
• Repeated Errors and mistakes – poor performers make many mistakes generating work that must be redone. Weak employees may also cause more accidents, hurting themselves and others thus putting you in a position of liability.
• Competitive disadvantage – hiring weak employees sends a message to competitors and customers that you are getting weak or some turmoil exists. This might encourage customers to leave and empower competitors to target your business.
Increased Management Costs Resulting From a Poor Hiring Decision
• More management time — weak hires are “high maintenance” requiring more coaching and hands-on attention. This time spent on weak employees can’t be spent on other management issues.
• Weak hires must be replaced — eventually these hires will have to be replaced. Unfortunately, weak hires have little chance of being recruited away or leaving of their own accord, so if your organization is reluctant to fire, they may stay with you forever.
• Performance management and termination costs — weak employees require frequent performance management, draining management/HR time and development resources.
Your Image as A Manager Is Tarnished
• Being branded as a “C” manager — a common perception is that weak managers routinely hire weak employees (C managers hire C players). Hiring weak employees will send a clear message to everyone in the organization validating that a manager has become a “C” manager.
• Loss of your colleagues’ respect — if you swing and miss on a few key hires you will likely lose the respect of others in your organization. This loss of respect may negatively impact their willingness to cooperate, to share ideas or work at a high level.
• Reduced bonus income — for managers who hire and retain a significant percentage of weak performers, performance bonus opportunities will be significantly reduced.
• Promote ability — hiring weak employees will be noticed by your superiors, which coupled with poor business results will limit chances of promotion. It may also lead to layoff, termination and limit your opportunities for jobs at other firms.
• Resentment by co-workers — better-performing employees often resent being on the same team with “losers.” They may have to spend a significant portion of their time helping out or fixing the mistakes of weak employees, ultimately reducing their own productivity.
• Increased turnover — hiring and keeping weak employees may send a clear message to high-quality employees that standards are being reduced and performance is no longer important. This may cause them to transfer or to quit the organization altogether.
• Opportunity costs — every slot taken up by a weak employee can’t be filled with a great employee. Without as many great employees as possible, you won’t have an effective team that produces superior results.
• Negative impacts on hiring “A” players — when candidates meet and interact with weak employees, they may reconsider opportunities with your team.
• Legal issues increase — weak hires are much more likely to file formal complaints and grievances. In addition, they often require extensive discipline. If a lawsuit or government complaint results, the cost of making a bad hire will be significantly amplified.
• Longer ramp-up time — weak new hires will require more intense and time-consuming onboarding taking longer for them to reach minimum levels of productivity if even possible. As their salary will not be reduced during this time, your ROI will.
• A loss of competitive intelligence — new hires who come from direct competitors can provide you with intelligence and best practices. Non-impact players on your team deprive you of the opportunity to upgrade your staff.
• Non Productivity Costs — weak employees are more prone to absenteeism and tardiness, which will require more use of costly temporary workers to fill in or lost productivity.
Something to think about
While it is difficult to pinpoint the total cost of a bad hiring decision or the choice not to hire at all, most accepted assessments put the cost of a bad hire to be 150-300% of their annual salary each year they remain employed. As a business owner or security professional with hiring authority you have a responsibility to your entire organization to ensure that new hires not only perform at the highest level.
On the surface outsourcing the recruiting function to a third party might seem like an unnecessary expense, especially in today’s economic climate where there is a perception that a large pool of talent fitting your exact needs is readily available. However, you may want to consider the cost to your organization and your personal future about bad hiring choices. Partnering with a professional recruiter, specialized in your hiring niche can not only save you money but also make you money in the long run.
Thanks for reading!