The Costs of a Bad Hire

“When it comes to business success it’s all about people, people, people.”

 – Richard Branson

The most important asset a business has is it’s people.  It’s hard to believe that when Instagram was bought by Facebook for $1 billion, their team only consisted of 13 employees.  In this case, it is easy to understand how essential it is to hire exceptional employees who will attract & retain devoted customers.  Although Instagram was a small startup at the time, the importance of hiring the right people applies to all companies.  According to a CareerBuilder survey, 75 percent of employers said they have hired the wrong person for a position, and of those who had a bad hire affect their business in the past year, one bad hire cost them nearly $17,000, on average.  Of course the true cost of a bad hire can vary due to the many variables involved. For example, according to the Society for Human Resources Management (SHRM), it could cost up to five times a bad hire’s annual salary, depending on the person’s position and the amount of time they remain in that position. In any case, making a bad hiring decision has serious implications for any business.

So what is a bad hire?

A bad hire can be a very expensive mistake not only financially, but can also have a significant negative impact within the organization. The Brandon Hall group defines a bad hire as “someone who negatively impacts organizational productivity, performance, retention, and culture.”  Although a majority of companies have a good idea of what their cost-of-hire metrics are, they often overlook additional variables such as missed business opportunities, loss of customers, a weakened brand & reputation, loss of productivity, and, perhaps most important, but harder to measure, reduced employee engagement.

Productivity

Employers have reported experiencing 36% less productivity as the result of a bad hire.  Not only will a bad hire produce less, delaying company goals, but they will also bring the rest of the team down with them. Suddenly the supervisors & managers are losing time managing these poorly performing employees and existing employees are having to pick up the pieces.

“A bad hiring decision can often cause a negative ripple effect through the organization,” said Greg Scileppi, president of international staffing operations at Robert Half. “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,” he said. The added pressure on top performers could put employers at risk of losing them, too.

Performance

As Greg Scileppi pointed out,a bad hire’s performance will often cause a team’s performance to suffer, creating a poor team dynamic. Brandon Hall Group’s 2014 team performance study found that 72% of companies were able to correlate team dynamics with improved productivity, and 68% of companies found that team dynamics positively impacted engagement. Additionally, poor performance can result in a damaged reputation due to a compromised quality of work within the organization.

Retention

For businesses to thrive in todays competitive economy, finding and retaining the best employees is crucial.  A study by Harvard Business Review found that 80% of companies believe that turnover is the result of a bad hire.

Culture

Employees who don’t fit into your culture will negatively affect those around them. They can decrease the enthusiasm, motivation and dynamics of your team, resulting in less productivity and profitability of your company.

In contrast, hiring people who do fit into your company culture increases employee engagement. An employee who embraces your company’s values, and is happy with the work he/she is contributing to the organization is much more likely to add value as an individual team player. They’ll also energize those around them resulting in increased employee motivation and productivity.

Why companies make Bad Hires

A recent survey by Robert Half showed that one-third of 1,400 executives surveyed felt the top factor leading to a failed hire, aside from performance issues, is a poor skills match.  Personality conflicts account for about 22 percent and failure to fit into the corporate culture comes in at 14 percent. By identifying the right skills and behaviors initially, you can ensure the best candidates are brought on board and bad hires are more easily avoided.

What you can do to Avoid Bad Hires

Fortunately, companies can prevent the costs associated with bad hiring decisions by using a proven behavioral assessment as part of their hiring process. Data from Behavioral analytics can help predict the performance and potential of individuals within teams and help managers avoid mistakes that can lead to a bad hire. By looking at data on a candidate’s behavioral drives you can ensure that they fit into the culture and are equipped with the right behavioral traits to be productive and happy in a given role. Additionally, the hiring process is simplified through automation and integrated reporting that enables HR to compare & contrast candidate’s data with existing successful employees’. Now Recruiters can screen, identify, hire, and onboard the candidates who are most likely to be productive more efficiently and accurately.

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