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The Cost of a Bad Hire

A 2017 Career Builder study notes that nearly 3 out of every 4 employers admit to having hired the wrong person.[1] As this seemingly affects most organizations, let’s dig into some of the tangible, and in some cases more importantly, the intangible costs of making a bad hire.

Tangible

We’ll start with some of the more obvious:

  • The cost of recruiting. This involves the methods used to source and identify candidates. This could include job advertisements, internal/external recruiting teams, subscriptions services, career events, and travel costs to name a few.
  • The cost of onboarding and training. This will vary by organization, but it’s widely recognized that having a robust onboarding and training program is a key factor to the early, and overall success of new hires. As such, many organizations dedicate a tremendous amount of resources to their new hires. Add in the cost of equipment, provisioning and then delivering that equipment.
  • The labor hours of those involved in the hiring. If you have a structured interviewing process there will often be multiple individuals, departments, and levels involved. How many hours of their day were spent looking through resumes, interviewing, checking references, negotiating, processing offers and compliance paperwork?
  • The individual’s Salary and Benefits. Again, this will vary, but in a tight labor market organizations are increasingly pressured to keep pace and offer stronger packages to attract and retain top talent. On average the US Dept of Labor estimates that benefits cost 30% of an employee’s salary.[2]
  • Any separation or legal costs, not to mention, the cost to start the process all over again.

 

Intangible

Now let’s look at some areas that are harder to quantify, yet could have an even bigger impact to the bottom line

  • Degradation of company culture and decreased morale. Due to compounding effects, this is perhaps the most costly to an organization, especially if the bad hire is left in place for an extended period of time. Standards are lowered, trust diminishes, communication suffers and ultimately employee engagement and output decreases. If it gets bad enough, your top employees will seek employment elsewhere or, at the very least, be much more willing to take that call from a recruiter.
  • Unhappy Customers and/or Project Delays. You’ve made promises and now your bad hire is causing you to under deliver. It’s easy to calculate the cost of a lost customer or stalled project, but what is the cost in terms of future opportunity? Future opportunity not only with that customer, but now let’s consider the cost to replace that dissatisfied customer. If the impacted project is internal facing, consider the impact to the business, personal capital, and opportunity costs. Let’s continue to explore the knock on effects of this below.
  • Negative reviews and brand degradation. We live in a connected world and people are very quick to share their experiences. Even if not on a public form, many people will seek and share information within professional organizations, conferences, or over a cup of coffee.  This can be a great benefit to an organization, but when a bad hire has created some of the issues discussed, it can all turn into a vicious cycle further increasing the costs of recruiting and customer acquisition.
  • Finally, it’s important to note that many of these will be amplified if the bad hire is in a Leadership role.

 

The true cost of a bad hire will differ for each role, employer and situation. Factoring in the tangible and intangible costs discussed above, it’s easy to see how most estimates start in the tens of thousands of dollars and can quickly get into the hundreds of thousands.

So how to do you avoid making a bad hire?  Well, that is a topic for another post, but a critical component of avoiding a bad hire is to ensure you’re provided a full view of the qualified talent available. In some cases, a good option is taking a trial run with a candidate before committing to a permanent role.  Partnering with a staffing professional at Rezult Group will provide you the data you need to ensure you are making the best possible business decision and allow you to mitigate, or even eliminate, some of these risks.

[1] https://www.prnewswire.com/news-releases/nearly-three-in-four-employers-affected-by-a-bad-hire-according-to-a-recent-careerbuilder-survey-300567056.html

[2] U.S. Department of Labor – December 2008 Employer Costs for Employee Compensation Survey

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