The True Cost of a Bad Hire

The True Cost of a Bad Hire

Nicola Palumbo

Hiring the right people is one of the most critical factors in managing a successful business. – yet, according to a report by Glassdoor and Brandon Hall Group, as many as 95% of companies admit to making a bad hire each year.

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Why? “The number one reason companies make bad hires is they compromise, they settle, they don’t hire the best person for the job. Compromise has its place in business, but it has no role in the acquisition of talent.”  — Mike Myatt, chairman of N2Growth

 

This isn’t an uncommon issue –  bad hiring is pervasive.

 

Research has shown that66% of employers experienced the negative effects of bad hires.

Another study on hiring professionals found that more than half have felt the negative effects of bad hires and 80% of turnover results from bad hiring decisions.

 

The person that an organization hires can be the difference between a high-performing workplace and an ineffective or toxic one – which is why organizations must be strategic and cautious about who they select to join their teams.

 

Research has demonstrated that top-performing employees can be four times as productive as the average ones, and that in some cases, top performers can be responsible for generating 80% of business profits. For this reason, many business leaders focus on building up their top talent. However, the same line of research also suggests that bad hires and toxic employees can have an even bigger impact on an organization than the top-performing ones.

 

Bad Hires Are Expensive

One study estimated that avoiding a toxic employee is worth approximately $12,500 in turnover costs – and researchers were careful to note that this fee could be much higher if organizations account for fines, legal fees, reduced morale and dissatisfied customers.

 

Other estimates, like the 2012 CareerBuilder survey, estimated that a bad hire costs organizations between $25,000 and $50,000.

 

Simple back-of-the-envelope math shows that it can easily cost $50,000 to recruit an employee and bring them up to speed, which makes recruiting the largest hiring expense for an organization (as the cost is often 20-25% salary) followed by time.

 

And beyond the tangible costs, organizations are paying for the cost of employee dissatisfaction, and suffering from the negative effect that bad hires have on company culture.

 

“A bad hiring decision can often cause a negative ripple effect through the organization. Hiring a bad fit or someone who lacks the skills needed to perform well has the potential to leave good employees with the burden of damage control, whether it be extra work or redoing work that wasn’t completed correctly the first time. The added pressure on performers could put employers at risk of losing them, too.” reports Greg Scileppi, the President of Staffing at Robert Half.

 

In fact, a study of the ways companies have paid for bad hires shows the following impact:

– 41% lost worker productivity

– 40% lost time due to recruiting and training another worker

– 37% expense recruiting and training another worker

– 36% negative impact on employee morale

– 22% negative impact on client solutions

 

Toxic hires not only tend to underperform, but can be uncivil to their colleagues as a result of being in a role that isn’t a good fit. In one poll, researchers explored the responses to being treated rudely or poorly at work, and discovered that across the people who experienced it:

– 48% decreased their effort at work

– 47% decreased their time spent at work

– 38% decreased the quality of their work

– 66% reported that their performance declined

– 80% lost work time worrying about the incident

– 63% lost time avoiding the person who mistreated them

– 78% reported that their commitment to the organization declined

Given the damaging and lost-lasting impact of toxic employees on the work environment, it is critical that business leaders make the right hiring assessments.

 

As leaders in the skills verification market, we want to help employers avoid bad hires and support them in getting their candidates up to peak efficiency as soon as possible – particularly in the technology sector.

 

Hiring a new software developer, for example, can cost $31,970 in recruiting spend alone. Once all of the costs are factored in, a year from starting the search, employers will have spent $206,122.13 on a mid-level developer in an average market – ramping up to peak efficiency over 29 weeks and working at peak efficiency for 17 weeks. In a hot market like San Francisco, employers will potentially have spent much more.

Our mission is to break down barriers in the hiring process by expanding growth opportunities through better workforce solutions. We offer a market-leading competency in skills verification that helps connects the right skills to the right job unlocking a new level of efficiency and opportunity.

We believe that hiring doesn’t have to be this hard. We’re dedicated to providing informative material that will support business leaders who are tasked with hiring the right people and getting them up to speed.

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