The Cost Of A Bad Hire

Ask Google or another search engine and you’ll get lots of figures from lots of sources – and some of them will be astoundingly high. You’ll also have some sources tell you that it’s really hard to put a figure on such a thing and there’s more to it than just the financial implications. Which is basically the long way to tell you that this is a topic with no easy answer.

The financial implications

The obvious answer is that this, of course, will depend on the employer, the salary attached to the vacancy and the method of hiring (i.e. using an agency or not) and whether you will need to hire temporary cover until you find someone else.

Oxford Ecomomics says the biggest cost is this hiring of temporary cover and then the cost of management time needed to oversea everything, both the hiring and the onboarding needs adding in. And don’t forget that research suggests hiring externally adds an extra 20% to the total cost. Having to go through the hiring process again can add strain to an already fraught situation and having to pay for a second time, without really seeing anything back from the first, will not help matters.

The problem is not the cost of going through the rehiring process, however, despite how large that figure can be, it’s everything else which feeds into it and from it.

The other implications and wider impact

Firstly, although it is expected that new hires will take a week or two to ‘get up to speed’ and be effective, efficient and productive, it is likely that your hire won’t have achieved 100% productivity and this could be costing you upwards of £25,000. And once you have gone through the hiring process again, you will have this lack of productivity while your second new hire gets ‘up to speed’. More importantly, however, is the effect this will be having on the rest of their team (since no one works in isolation).

The rest of the team is liable to resent having to pick up your new hire’s slack or deal with bad attitudes. If the problem is that your new hire just doesn’t fit the culture quite right, no matter how hard they work, it will still have a problem on the overall rapport and morale of the team. Changing the dynamic in a negative way can have many implications, all of which could be very costly.

  • It could lead to decreasing productivity throughout the team.
  • Absenteeism can increase as others develop poor work ethics or try to avoid other team members.
  • The quality of service could also decrease through the lack of morale, rapport and decreasing work ethic/ productivity. This could lead on to damage the reputation, results and standing of your organisation.
  • As well as increased absenteeism, it could lead to higher staff turnover.
  • Poor service and productivity could result in a loss of customers and opportunities.

There’s also the possibility that you have drastically made the wrong choice in candidates, leading to theft, embezzlement, data protection issues and fraud, which will have serious financial and legal implications.

If you add the financial cost of all the above to the hiring costs, then clearly the cost of a bad hire can be extravagant!

The data

The Recruitment and Employment Confederation found that UK business were failing to hire the right candidate in two out of five roles, 85% of HR decision makers reported their organisation has made at least one bad hire, and 39% employers admitted their interviewing and assessment skills required improvement.

Leadership IQ data adds to this troubled picture with the figure that 40% of hires turn out to be bad within 18 months which was based on 20,000 new employees in 312 organisations across three years. What was interesting from this research was that only 11% were bad hires because of lacking technical skills. Instead, they proved to be the incorrect person for the job because of issues with accepting feedback, emotional intelligence or because they didn’t have the right temperament or motivation for the role.

Which brings us to…

What can you do to avoid this?

A very important first step would be to look at your advertising, hiring and assessment strategies to find any weaknesses. How did this bad hire slip through your system? Did you ensure you matched your job specification to the candidates during interview? Did you ask probing questions which required specific examples? Did you consider how well they would fit into the team or assess their level of engagement and motivation? Once you find the flaw(s) in your processes, you can work to improve things. Perhaps take a look at our article on how to avoid hiring the wrong candidate and interview questions as a starting point.

The data from Leadership IQ clearly shows that assessing technical skills required for a role is not where the problem lies. It suggests that moving forward interviewers and HR personnel need to focus on assessing candidates’ emotional intelligence, search for evidence of their level of motivation and interpersonal skills, judge their ability to communicate and receive feedback, and other such qualities. Unfortunately, these are the elements that are often hard to judge.

American research (find the report here) suggests that the typical cost of replacing an employee is 21% of their annual salary. However, I think it is highly likely that this is too low if one takes into account the affect on other’s productivity and overall effectiveness of delivery, particular if the bad hire is working at a senior level.

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