The True Cost Of A Bad Hire? Probably A Lot More Than You Think

Tue, 14 Jun 2016Recruiting Challenges

Company culture is invaluable really. Just think how powerful ‘Don’t Be Evil’ has been for Google as a corporate motto. Think of Patagonia and you think of support for good causes and efforts to promote social good business. Brands like North Face or Innocent Drinks have a culture that values and respects their employees.

Almost invariably it is ‘top down’, established by the company founders or hierarchy – but crucially, it is maintained by the staff. After all, if they aren’t living it, then it quickly dies.

Which is why hiring the wrong person can have seriously deleterious effects on your business.

The No Asshole Rule Book Cover

The No Asshole Rule, by Robert I. Sutton, PhD

This impact has been memorably documented by Stanford University professor Robert Sutton in his New York Times Bestselling book, ‘The No Asshole Rule’ (or, to give it its full title, ‘The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn’t’). Who or what qualifies in this context? Employees who are insensitive to their colleagues, corporate bullies, bosses who just don’t get it, and the kind of people who just seem determined to drive you to distraction.

Now, not hiring someone like that may seem like a low bar to set yourself, but when you see how many of them are out there and the corrosive effect they can have on an organisation, it’s a useful guardrail.

Not the worst, just not what we wanted

We like to think that modern recruitment is a rigorous process that’s designed to extract a shiny new pearl from a seabed full of oysters. Sadly, recent statistics suggest that there may be as much grit as pearls coming through the hiring process.

If hiring an example from Professor Sutton’s book is the ultimate recruitment fail, there are lots of other occasions when the process fails – wrong skills, wrong attitude, wrong fit – and costs you to replace them after six months. But what are the true costs of this lower level fail?

The news that 62% of UK employers reported a bad hire in a single calendar year would make you wonder if hiring managers are using a coin flip to select new recruits! Finding a real pearl may seem like a lot of work but there are obvious benefits to making sure that the person you hire is right for you.

You may be in a rush to fill the vacancy but taking on someone who doesn’t work out will end up costing you more time, money and customers in the long run. So just how much does hiring the wrong person cost your company?

The financial hit

It’s obviously difficult to put a definitive price on a poor hire as factors like industry, position and hiring approaches can vary greatly from one case to another. Not all pearls have the same value and not all employees will be as easy to replace.

A recent study by the Oxford Economics report revealed that replacing an average member of staff costs £30,614. The basic logistical cost of hiring someone new is pegged at £5,433, but it is the ancillary costs of the decision that really add up.

The £30,614 figure included the cost of hiring temporary workers, management and HR time spent in the selection process, job advertisement and the loss of productivity during the replacement process. The importance of good recruitment comes sharply into focus when you put it like that.

That’s a pretty hefty cost for any business to absorb but it could be worse when you consider some of the other estimates. 27% of UK companies told an international survey by CareerBuilder that a single bad hire cost them more than £50,000.

Recruitment guru Bradford Smart estimates that a mis-hire could cost 15 times the base salary for a manager, rising to 27 times for an executive. Despite being regularly quoted in these discussions, Smart’s figures are quite dated and seem a tad excessive by any standards. He also factors in costs like outplacement counselling fees, severance fees and stock options that will not always apply.

However, a mis-hire can have hidden costs that can have major consequences.

The ripple effect of a bad hire

Most workers don’t operate in a vacuum so the wrong person in the wrong place will cost you more than just money. A bad hire puts a strain on the team dynamic, whether it’s because they’re a bad cultural fit or because their poor performance makes more work for everyone else.

A survey by Robert Half found that managers spent an average of 17% of their time coaching or supervising underperforming employees. So a poor performer can sap away an organisation’s efficiency from the top down.

A telling stat was that 95% of Chief Financial Officers believed that a poor hiring decision impacted upon team morale, with 35% saying that morale could be greatly affected. This psychological drain on the organisation is a subtle, but serious, consequence of a bad recruitment choice.

How your business suffers

A worker that’s out of their depth can lead to lost business opportunities and fractured relationships with your clients. Your bottom line is going to take a hit if production plummets on their watch and they manage to permanently alienate valuable clients.

The Oxford Economics report revealed that new workers in SMEs can take an average of 24 weeks to reach optimum productivity, with new workers in firms with over 250 employees taking an average of 28 weeks. Assuming that a new recruit doesn’t work out after a six month trial, the chances are that they never got up to speed during their entire time with the company.

If an average replacement takes six months to get up to speed, a poor hire will cost you an extra six months of diminished productivity. And that extra work is inevitably going to land on the desks of your other workers, which is never going to create a workplace full of happy campers.

The main takeaway is that it pays to retain great staff when you have them but, if you really have to go down the recruitment route, taking the time to find a real pearl can save you money in the long run.

What can you do to choose wisely?

There are a number of ways to improve your success rate:

  • Plan your recruitment process
  • Define the ideal candidate profile before advertising the position
  • Use your current employees’ social network to improve the chances of finding candidates that are a good cultural fit for your organisation
  • Review candidate backgrounds, credentials and qualifications thoroughly
  • Pre-screen candidates
  • Use assessments to test skills/knowledge

Hireday’s unique technology can help you choose the perfect new employee for you. For instance, its Instant Matching software offers a visual guide to show you which candidates most closely match your ideal profile. Its online assessments also make it easier to identify unqualified or unsuitable candidates.

Unfortunately, it’s not perfect – it doesn’t have an ‘asshole detector’ built in. You’re going to have to figure that bit out yourself!

To take a closer look at your own recruitment budget, why not try out our free Cost Calculator to see just how much you’re spending now – and how much you can save by using Hireday? Simply click the button below!

Get a handle on your recruitment budget today.

HIRING PROCESS

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Farid Oudjane
CEO & Founder at Hireday
Farid enjoys writing about recruitment, technology and updates to Hireday.
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