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The true cost of a bad hire

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Article posted by Cobalt - US

​As we emerge from COVID in the US and with an increasing candidate-driven market, roles are being filled at a faster rate than ever. This is great news for candidates! And for employers it can mean you might secure talent against your slower moving competitors and (hopefully) means you get to hire the best possible person.

Unfortunately, speed doesn’t always mean accuracy, and can sometimes lead to the wrong hire, which in turn can have a massive impact on your business.

According to the U.S. Department of Labor, the price of a bad hire is at least 30% of the employee's first-year earnings. For a new hire on a salary of $90,000, that would put the cost at around $27,000. Yikes. Well-known recruiter Jörgen Sundberg puts the cost of onboarding an employee at a staggering $240,000. Another study found that 34% of CFOs agreed that bad hires cost them productivity. Moreover, they said that managers spend 17% of their time (almost a day a week) supervising poorly performing employees. Numerous studies have been completed that put the cost of a bad hire somewhere between $8,139 and $211,000!

Whichever way you look at it, that’s a big hit for any business. But for a small business, the impact can be even more damaging when limited budgets are involved.

There are a number of things that can contribute to this cost:
  • Lost productivity from both the bad hire themselves and other team members which are also negatively impacted by their behavior.

  • Training costs when onboarding the new hire or trying to correct bad behaviors / upskill them to do the job properly.

  • Recruitment costs of finding the new hire in the first place, and also any subsequent replacement.

  • Reduced morale of the team through the negative behaviors of the bad hire and associated stress.

  • Lost revenue.

  • Lost clients.

  • Damaged employer brand if a bad hire is allowed to remain and affects the culture.

  • Legal costs if a bad hire needs to be dealt with due to employment law matters.

  • Increased staff turnover if other team members are negatively impacted and decide to leave.

  • Time spent on dealing with the bad hire and remedying the situation.

So what common traps are managers falling into, and what are the possible remedies?

1. Over-estimating the candidate’s experience – unfortunately, some clients don’t put in place thorough processes during the interview stages and simply hope the person will really do all the things they said they can in the interview.

Possible remedies: competency-based interviewing, short technical tests and referencing are three simple ways to reduce this risk and they don’t have to delay your process if planned in advance.

2. Ignoring cultural red flags they’re so close but just a little off so hell, let’s pull the trigger. Most organizations know how important cultural fit is, but it can be forgotten when faced with an urgent position to fill.

Possible remedies: make your employer brand a key part of the interview process. Have the potential candidate chat to someone doing the role, be honest about the tougher parts of your culture (everyone has them, they just don’t want to talk about them!). Peer-to-peer interviews are also a great way to check culture fit. Also, give the candidate plenty of chances to ask their own questions too – remember it’s a two-way street and if they know enough about your company, they might decide for themselves it’s not the right fit.

3. Filling a seat – with so much pressure to deliver, it’s easy to think that hiring someone quickly is the simple answer. Many clients will hire someone as they think it’s better to have the role filled than not, even if their gut instinct is telling them they are not quite right.

Possible remedies: always think whether this person will be here longer than a year. If not, why hire them at all? Also consider if you could hire on an interim basis in the meantime while you wait for that perfect hire or give someone a trial period before they join full time.

4. Poor onboarding processes – they might be a decent hire, but lack of proper onboarding can quickly turn that person into a bad hire. Did you know, strong onboarding processes improve new-hire retention by 82 percent and productivity by over 70 percent, according to Brandon Hall Group research.

Possible remedies: onboarding a new employee should be more than their first day or week. Have a long-term program in place: welcome new joiners on their first day, give them a tour of your office/building, introduced them to key team members, ensure their workplace is already set up, and provide a schedule of what their first few weeks will look like, including any training, important meetings, key contact names and numbers etc. You should also set up regular meetings (30, 60, 90 days etc) to check how they are settling in. Some firms also set up buddy systems for new starters so they have someone they can go to for chats and advice.

No company wants the hassle or expense of a bad hire. By putting in place a few key processes, employers can ensure they hire the right people who can deliver on the job, contribute productively and positively to the firm and stick around for the long-term.

If you need advice on how to avoid a bad hire for your team, or would like assistance with your recruitment, please drop us an email to discuss how we can help.