The Real-World Cost of Bad Hires

Have you considered the real-world cost of bad hires?

I’ve found that one of the biggest challenges in operating an organisation isn’t necessarily the day-to-day challenges you face, it’s finding the right people to help you fight the onslaught. Building up a team filled with A-players is one of the most important objectives early on in the process, but it’s no easy feat.

The person sitting in front of you in the interview, the potential candidate might seem like they’ve got more than the necessary skills to do the job, but there’s a lot that can change in the first few weeks and months. While this is a scenario with variables largely out of the control of leaders and staff members, there is one thing that an organisation can do to ensure they’re fostering the best brains that money can buy.

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I’d like to take a look at the data at just how costly bad hires can be to an organisation’s viability in the market, and then wrap up the conversation with a note on accountability, as well as company culture to help inspire better results through the A-players you’ve got on your team.

The results of a 2015 survey showed that as many as 46% of all new hires were classified as a failure by the 18-month mark, and while these numbers might be five years old now, I’m confident enough in stating that the rate would be around the same mark, if not higher in the year 2020. On the flip side of the equation, too, only 19% of that same sample size that their search for a candidate was an “unequivocal success.”

It’s a costly exercise getting staff members inducted, trained up and planted in your organisation as a part of the team, and it becomes even costlier if you bring in the old adage that one rotten apple can spoil the bunch. While the figures we’re about to discuss outline the monetary cost to an organisation that a bad hire can cause, there’s also the detrimental impact to your culture that can cause disengagement, spark complacency and even contempt toward management from some of the most extreme examples of this that I’ve had to deal with personally.

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Now, moving to that monetary cost that we just mentioned, according to the US Department of Labor, the cost of a bad hire can exceed 30% of the employee’s first-year earnings, while data from The Undercover Recruiter says that the cost of a bad hire can incur up to $240,000 in expenses related to hiring, compensation and retention. There’s also numbers out there suggesting that 74% of companies that have admitted to a bad hire said they lost an average of $14,900 for each employee that either didn’t have the capabilities for the role, or wasn’t a cohesive fit with that organisation’s culture. These are only one aspect that your organisation is paying for when it comes to bad hires- there’s also the resources and time wasted in the process, quarterly results that can dip below performance benchmarks because that staff member isn’t fit for the role, and as we mentioned before, the massive impact on culture and disengagement that can follow a toxic employee.

The most common reason for new employees failing to settle in and produce results are, according to a study from Leadership IQ, 26% fail because they struggle with receiving critical feedback, 23% fail to adequately manage their emotions, 17% remain unmotivated, 15% lack the temperament necessary for that setting, and 11% because they lack the technical skills. This last point is particularly interesting considering that there’s a preconception that a lack of technical skills would be atop the list, rather than the bottom.

Now, let’s move onto the question of why organisations continue to make bad hiring decisions that inevitably backfire.

TalentVine writes that “36% didn’t assess the candidate’s skills well enough, 31% of candidates lied about his/her qualifications, 27% were pressured to fill the role quickly and 10% didn’t run adequate reference checks.” The responsibility for an organisation to run these checks can also be further complicated by the fact that up to 50% of candidates misrepresent themselves on their CV, and as many as 30% blatantly lie about skills, positions and qualifications. In addition to this, 82% of managers that took part in a survey said that with the gift of hindsight, there were “subtle clues that they would be headed for trouble,” but for a number of reasons, they went ahead with hiring that candidate anyway.

Mark Murphy, CEO of Leadership IQ said that “the typical job interview process fixates on ensuring that new hires are technically competent… But coachability, emotional intelligence, motivation and temperament are much more predictive of a new hires’ success or failure. Do technical skills really matter if the employee isn’t open to improving, alienates their coworkers, lacks emotional intelligence and has the wrong personality for the job?”

These are all questions well-worth posing to yourself and those around you in the organisation when it comes to the hiring process. Highly profitable and efficient organisations owe it to their staff for great results; although some of the more conservative and traditional leaders might not have the humility to admit it. Those that do, however, realise just how important it is to create a culture that fosters creativity and professional development, maintaining a healthy balance of accountability in their efforts and a safe environment for them to fail, but try again. Richard Branson of the Virgin business empire once said that it’s important to train staff so they can leave, but create a company culture to vibrant that they won’t want to.

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