The True Cost of Making a Bad Hire
As hard as you try to nail your hiring and secure the best candidate for your team every time, slip-ups happen and the wrong people sometimes end up in those roles. It happens to the best of us. However, these hires can end up costing you a lot more than you’d think and we’re not just talking monetarily.
So what is a bad hire, how much do they cost, why do they happen, and how can you avoid making them?
Let’s break it down.
What makes a bad hire?
About half of new hires fail within 18 months according to research by Harvard Business Review. Additionally, only 19% of new hires are considered a clear success and this applies to both entry-level and senior staff.
What makes someone a failed hire though?
It’s not a lack of technical skills as you might suspect (although these are important), but rather attitude. Attitudes drive 89% of hiring failures.
Other determining factors are a candidate’s coachability, emotional intelligence, motivation, and temperament.
While we don’t encourage finding problems in employees to gripe about, you might have a problem if you spot a few of these red flags:
- Employee quality of work is not up to standards set during the training period.
- The employee keeps making the same mistakes over and over.
- They are frequently late to work or miss days completely.
- The employee doesn’t take ownership of mistakes.
- Skills are missing that the employee claimed to have in their resume.
- The employee is very negative and critical of the company processes and systems.
- They don’t complete projects on time and consistently underperform.
- Customers complain about the employee’s poor attitude and give bad reviews.
- They constantly complain about work to their coworkers.
- There is a growing lack of respect for management.
As you can see, this has very little to do with technical prowess, which is why we advocate for the “hire for attitude train for skill” model.
Why it happens
There is a myriad of reasons why you might end up hiring the wrong person for a role, but the most common across the board seems to be time constraints. Speed is the operative word in a lot of processes and so because a role needs to be filled quickly, hiring managers may overlook a red flag in favour of meeting deadline-driven demands.
Sourcing strategy errors
It may also be that the sourcing strategy for that particular role wasn’t adjusted accordingly or that the recruiter simply didn’t have sufficient detail or understanding of what the needs for that role entail.
A shortage of recruiters could be attributed to the Great Resignation and means that there just aren’t enough people to go through the sheer amount of applications received – a reason why a solid ATS might be your saving grace.
Check your Employee Brand
Perhaps you simply don’t live up to candidate and employee expectations. A bad employer brand attracts the wrong kind of talent. One study found that a strong employer brand can raise your quality of hire by 9 per cent.
The monetary costs of a bad hire
There are several ways to calculate how much a bad hire actually costs you. Some sources say it’s about 30 per cent of expected earnings for the first year of employment, while others say the average cost is 2-3 times their salary.
The knock-on effect is real too, as it’s not just the employee in question who’s sucking down resources. In a study, 34% of CFOs said that not only do bad hires cost them productivity, but managers also have to spend 17% of their time supervising poorly-performing employees.
You can calculate exactly how much by looking at a couple of factors, namely:
- Salary of new employee
- Average number of days to fill position
- Duration of hire (months)
- Your salary
- Cost of advertising position
- Hours spent reviewing candidate resumes
- Hours spent conducting interviews
- Cost of lost productivity
- Days spent training the new employee
If you are a small business and have a small budget, this amounts to a lot of wasted money that can hurt your bottom line.
The cultural impact
While the quantifiable impact of bad hires might feel like the biggest issue, the impact on your team may actually be worse.
The impact on morale and productivity is actually ranked ahead of monetary losses by most CFO’s. This is because the effects of a bad hire have kind of a “snowball effect” where current staff have to pick up the slack and, like a cold, feel the contagion of a demotivated teammate. This means additional time and labour, greater pressure on performance, and added stress.
Overall, it’s a very real productivity drain and brings the team down, potentially the push they need to jump ship.
Your Employees are your most important asset, so it’s key that you invest accordingly. A bad investment could cost you far more than is quantifiable in the long run.
How to avoid bad hires
Stick to a strict selection process
Do not compromise on your processes. You have benchmarking in place for a reason, and if you don’t, it might be time to tighten that up. Ask for concrete examples from their previous positions that not only sufficiently demonstrate their abilities, but also give you an idea of what their work ethic and demeanour are like. It makes it easier to determine that they can actually do the job and assimilate to your team’s culture.
Take your time finding the right person
Do not overlook a candidate’s flaws just to fill the role. It will inevitably come back to bite you if you do. Get opinions from potential future colleagues or external experts if you want to get a really thorough read of someone. It also helps avoid biases creeping in. Also don’t neglect references from previous employers and personal contacts. They’re a valuable insight into not only the candidate’s attitude but personality and work ethic.
Make your EVP authentic
Be honest about your employee value proposition (EVP). What can you offer a candidate that makes you a better choice than the competition? This isn’t just in terms of benefits either. You’ll need to take into account vision, culture, and reputation. Nothing will get this across quite as well as existing employees, so put some time into cultivating brand ambassadors. Don’t hesitate to throw in the bad with the good either. Be honest about the challenges that the position presents. Is it fast-paced? Deadline driven? Competitive? Being upfront about those things will draw out candidates who are up for it and could truly thrive in that kind of environment. A strong and authentic EVP will help retain top performers and attract the best external talent.
At Move, we like to say ‘You’d be a great fit if…’ and also include ‘This role is not for you if…’. Here we mention the fact that we’re growing quickly, are remote-first, and have a fast-paced, pathfinding work environment some might find unappealing.
Run a trial
For more junior roles, take promising candidates on a trial or probationary basis. This gives them time to settle into the new environment and gain a deeper understanding of what the requirements are. There’s only so much you can gauge from interviews by presenting them with hypotheticals. Once they’re in the role and you’ve provided them with the tools and information they need, it’s easier to determine whether they’ll be a good long term fit for your company.
At some point, you will hire someone who does not meet expectations and although there is no sure-fire way to guarantee you only get the best, following these guidelines will alleviate some of the risks and ensure a consistent hiring process.
Alternatively, you could always let us handle the hiring for you.
We help you scale with an embedded team of world-class recruiters that will absorb your culture and handle the recruitment process for you from end-to-end. Let our expertise and keen eye help source you the best of the best.