The True Cost of a Bad Hire
Getting the right people on board is generally acknowledged to be important for achieving competitive advantage and driving business success. Most business leaders now understand that attracting and retaining top talent is critical.
Yet without good recruitment and selection processes in place, it is all too easy to end up with the wrong person in a role. Even then, making the wrong decision can still happen. This happens more than most people think. In fact, a study in 2017 by the Recruitment and Employment Confederation found that 85% of HR decision makers stated their company had hired someone who was not right for the job. The same research showed that a third of those hiring the wrong people do not think this costs the business anything. In this, they are very, very wrong.
The Actual Cost of Getting it Wrong
Several studies have analysed the costs of a bad hire. The Recruitment and Employment Confederation demonstrated that getting it wrong for a person that is paid £42,000 is likely to be up to £132,000. Putting that another way, getting it wrong will cost the business more than three times that person’s annual salary! This is also believed to be a conservative figure – the real cost is likely to be higher still.
Some research indicates that the actual cost may be as much as 40 times a person’s salary. Getting it wrong is clearly very expensive. Businesses that hire the wrong people might as well throw their money down the drain.
The Hidden Costs of Getting it Wrong
At first glance it is difficult to see why hiring the wrong person could be so financially damaging. That is because many of the costs of getting it wrong are hidden in the day to day activities of the business. Looking in depth at where the costs mount up is useful in understanding the true extent of the problem.
Some of the costs of a bad hire are more obvious than others. If the company has paid for a job advertisement, it is easy to see that this expense is duplicated if the person hired first time around is wrong for the post. If the job advertisement has to be re-posted, the costs are clearly doubled. If the business worked with an agency or head hunter to find the person, then the increased costs in this area are also easy to understand.
The hidden costs include the time spent internally on recruitment and selection. This includes everything from time spent on an initial paper sift of CVs through to the time scheduling interviews, carrying out the interviews and onboarding the new person. All of the time spent undertaking these activities is replicated if the business gets it wrong first time around. There may also be costs associated with the fact that those doing interviews were not focused on other aspects of their job role during those times. These costs are very difficult to pinpoint, but they are certainly there.
Then there are the costs of training the person. If the firm then has to repeat the training over again, this starts to mount up. Added to that, it takes a new hire more than half a year (on average 28 weeks) to achieve optimal productivity. That is six whole months where a job role is not being performed productively. If the business gets it wrong first time around, there is an entire year where there is not a productive person in a role (six months first time around with the wrong hire, six months with the second hire).
Added to that, there are also costs associated with not having a person in the role. If existing employees are having to step in to cover, they will not be productive in either this job or in their own job. The knock on effects can be very detrimental with quality suffering through mistakes made as the pressure rises. What is more, the employee runs the risk of burnout, or at the very least becoming disgruntled as a result of being put upon more.
The Impact on Employee Engagement
Hiring the wrong person is also damaging because that employee will quickly become disengaged once they realise they cannot perform to the required standard. The costs of disengaged employees are staggering. Studies show that in the UK the costs of disengaged employees amount to £52-70 billion per year as a result of lost productivity. Gallup found that 83% of the UK workforce is disengaged. Employees that are simply disengaged do what they have to, and nothing more. They will not go the extra mile or put in any extra effort.
Absenteeism is much higher when employees are disengaged, and this also leads to lower productivity. Engaged employees end up picking up the slack, impacting on their motivation too. Even accidents are higher when employees are not engaged. There are costs tied to that too.
Worse, employees that are “actively disengaged” are toxic. They damage morale by spreading their bad vibes to others. The true cost of this is very difficult to calculate, but it is very real, leading to more widespread issues with employee retention.
Impact on the Business and Brand
A bad hire can also create costs in the damage that they do within the business or to the brand. People who are not right for the job may be more likely to make mistakes. This can happen either because they are not competent and do not understand what they supposed to be are doing, or because they are disengaged and simply do not care.
When employees do a bad job, customers are impacted. A poor attitude is unlikely to drive customer satisfaction with the company, quite the opposite. Repeated mistakes are also unsatisfactory for customers. The end result is that it may become more challenging to retain customers as they look elsewhere for a service that is of a higher standard.
Losing existing customers is not the only concern. The impact on the brand can be high, and particularly in a legal setting. A legal counsel that does a bad job leads to damaging consequences for people or businesses. When word of these failures gets out it will be very negative for the brand. This makes it difficult to attract new customers and existing customers may also start looking elsewhere.
Even this has further repercussions. When employees in this sector make mistakes, word gets around quickly among people that might otherwise have been interested in working at the firm. No legal counsel wants to be associated with a firm that they have heard is doing a shoddy job. It does not make sense for their career. This makes it increasingly harder for the business to attract and hire top talent to open posts, as the employer brand and employee value proposition become degraded.
The costs of these types of problems are very hard to quantify but that does not mean they do not exist.
How to get it right
Doing the same thing over and over and expecting different results will not work. If the business is hiring the wrong people it is time to look at recruitment and selection to find ways to improve.
The good news is that all of these costs, hidden or otherwise can be avoided by identifying and hiring the right people in the first place. Improving the processes is one way in which this can be achieved. In some cases people who are doing the hiring may need training so that they can improve what they do.
It is also possible to look at other tools and techniques that can enhance recruitment and selection processes. Instead of relying on interviews alone, group tests could be used, and these can be helpful in pinpointing all kinds of candidate characteristics, both good and bad. Another good tool is psychometric testing. While candidates may have learned how to hide certain attributes in interviews or other interactions with others, it is difficult to “cheat” a psychometric test. This helps provide another perspective on a person that may otherwise not be gained.
Yet another alternative is working with an agency. Agencies are expert recruiters. They do this every single day. If you engage the right agency you can lower your risk of bringing in the wrong person. While the costs of using an agency may be off-putting initially, the fee paid is a small price compared with the cost of getting it wrong.
How we can help
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If you would like to outsource this process to an expert, why not get in touch today to find out what we can do for you.
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