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What is the Cost of a Bad Hire to Your Business?
The overall cost of a bad hire, I have been told by those who research these things, can be as high as two times the annual salary of the employee, especially when they are entrenched. Therefore, the higher and more highbrow the position is—the greater the expense. Using pre-employment assessment tests is one easy way to prevent this and is extremely effective when combined with reference checking and structured interviews.
If you examine some of the following reasons, you will understand why the cost of a bad hire is so high:
- They make money but not a profit.
- They cause the team unnecessary stress.
- They upset customers with missed deadlines and indifferent attitudes.
- They wreck everyone’s day as well as team spirit. (They scare some.)
- They cause good workers to be falsely blamed.
- The time, money and effort to train them needs to be done again with a replacement.
- The price for typical learning mistakes needs to be paid for again.
- The manager is under continuous pressure to weigh the pros and cons of keeping them. (Stress.)
- The manager has the unpleasant task of confronting them. Or, the manager who won’t confront them has the yucky feeling from running, avoiding, feeling guilty, and running some more, until the inevitable blows up.
- The manager has the rotten task of firing them.
- The manager may have to live with guilt, due to the fired person’s family situation.
- Lost productivity from not having someone who is the right fit for the position
- Costs related to recruiting a replacement.
- Frivolous unemployment claims or unfounded litigation for falsely perceived employer violations of the local job codes.
The cost of a bad hire one client experienced was a very energetic salesperson who bothered the other sales people and lowered the overall sales (even though his numbers looked good), and when he finally got the boot, he had already brainwashed a good employee into quitting. His boss caught him taking the best leads for himself in a sneaky way. The financial loss, from lost sales, the expense of replacing him and the one he influenced, easily exceeded two times his annual earnings.
Another walking disaster was a desktop publishing wiz, who repeatedly chose to ignore job priorities. He also refused to recheck details, which caused customer complaints. His failures caused many headaches and slowdowns among the team. His manager’s manager finally figured out who was causing the trouble and allowed the manager to give him his walking papers. The bill for the pleasure of the problem’s company was at least twice his annual salary. This manager concluded—skill alone was of little value without cooperation. The
The emotional suffering and stress for keeping a problem is even higher. A supervisor is either faced with the unpleasant task of continually disciplining the person or letting the cancer drift to others. If you add the hard cash and personal grief from hiring a person like this, the value of hiring good people becomes a matter of survival.
My management consultant brother once told me that all his clients who had problem employees in key positions were in financial trouble. The moment they corrected the matter, their businesses did well again. This is serious business.
To learn more about preventing the costs of a bad hire check out our book: “Hiring Talent Team Players: A Guide to getting it right”
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