How Much Do Bad Hires Cost You

24 Apr

There’s a lot of attention to detail and careful planning that go into hiring decision making. And for good reason: Businesses aren’t just on the lookout to land a job applicant who satisfies requirements and interviews well. All that meticulous preparation is also undertaken to ensure employers don’t corner themselves into a bad hire.

As much as a good employee can play a part in helping the business achieve growth and better numbers, so too does a bad hire have the capacity to throw operations off track, put a drain on company resources, and create a swirling black hole of unproductivity that hampers talent management.

Indeed, bad hires can prove to be costly in a number of areas for the business, making it crucial that companies understand what they put at risk when they make a bad hire and what strategies they need to take to prevent the situation from happening.

Pocketbooks Take a Hit
The most commonly cited problem businesses have with a bad hire is the negative effect he or she can have on what matters most: the bottom line. But it goes much deeper than lost wages and wasted recruitment efforts. Talent is what powers the business, and by investing in human capital, firms can improve the prospects. Yet that investment is rendered a holistic loss for the company when it makes a bad hire, costing more than it might know.

An infographic prepared for Resoomay, an online applicant matching service, found that in a scenario in which a midlevel manager making $62,000 a year was fired 2 1/2 years ago, the business would incur bad-hire costs of $840,000 and generate a negative 298 percent return on employee investment.

As evidenced, bad hires not only cost the business in the short term by, in essence, wasting dollars spent on wages, benefits, and recruitment, but they also put the company in a perilous position moving forward because of the rotten investment a bad hire turns out to be—one that can plague the company for years to come and force it into taking action on corrective measures.

But Just What Is a Bad Hire?
Already, it’s been proven that bad hires can negatively impact business finances, but how do firms know when they have such a case on their hands? Telltale signs like disregard for the dress code may work to identify one on the surface, but there are other indicators businesses need to take note of before bad hires sabotage employee engagement strategies.

A recent CareerBuilder survey investigating the costs of a bad hire offered organizations a glimpse of what the term really means. The most commonly cited characteristic of a bad hire was poor quality of work (67 percent), which was followed by not working well with others (60 percent) and having a negative attitude (59 percent). Immediate attendance problems (54 percent) were also a theme found through responses, as were customers’ complaining about an employee and not meeting deadlines (both 44 percent).

Other Employees Negatively Affected
Not only are the harmful effects of bad hires well documented, but so is the damper they can put on officewide productivity. Recent research from recruiting firm Robert Half International found managers dedicate 17 percent of their time to coaching or guiding bad hires, a fruitless endeavor in many cases. The same research found 98 percent of managers thought bad hires sap team morale, with 35 percent responding they do so to a great extent.

So What Can You Do?
As a cautionary tale, the same CareerBuilder survey also detailed the many coinciding factors that businesses often attribute to pushing them into a bad hire including: needing to fill the job quickly (43 percent), insufficient talent intelligence (22 percent), and not following up with references (9 percent).

Oftentimes, these are circumstances that cannot be rectified overnight, or at all, but there are still a number of strategies business can employ to ward off making a bad hire, including:

  • Never lose focus on quality. The key to making a beneficial hire for the entire company is bringing on an applicant who distinguished him or herself from the rest of the pool. Settling for a lower-quality candidate because the position needs to be filled is a recipe for disaster.
  • Look at the intangibles. Applicants can show off their laurels and accolades on their CVs, but when it comes down to brass tacks, qualities and personality traits like work ethic and ambition are more valuable to the company and more present in good hires.
  • Make it a collaborative approach. Hiring managers who operate solo are more likely to miss something that might indicate an applicant would not be a good hire. Involving HR and other departments in the hiring process can help make the hiring process more efficient.

Have you made bad hire before? If so, what do you think it cost your business? Let us know on Twitter by mentioning @SageHRMS in your tweet or by commenting on our Facebook page.

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