How much does a bad hire really cost?

The consequence of an inadequate and underperforming hire is detrimental to any organization, large or small. Bad hires cost organizations in entirely different and interconnected ways. The negative costs incurred affect company productivity, finances, employee morale, and overall reputation.

The combination of these effects has been acknowledged by major organizations, however they continue to implement new methods in an effort to make better and more informed hiring decisions. Despite preventative measures made by HR, the problem remains in the hiring process.

“Less than one-third of the hires made using standard process are considered ideal. And about one in four hires is a complete mis-hire, with the majority of hires being merely workable.” (Myler, Forbes)

The cost of a bad hire. For any organization, it is imperative to understand the degree of each associated cost.

• Productivity Costs: the time and effort spent towards training and managing a new employee decreases overall productivity and causes the business to suffer.
• A bad hire results in fewer sales.
• Supervisors spent 17% of their time — about one day per week — managing poorly performing employees.
• As much as 80% of employee turnover is due to bad hiring decisions.
• Financial Costs: a bad hire is a financial burden. The money lost due to decreased performance, recruitment fees, and overall loss of output can severely affect the business.
• According to a recent report by Oxford Economics it costs, on average, £30,000 to replace a member of staff.
• The U.S. Department of Labor estimates that the cost of a bad hire can equal 30% of the employee’s potential first-year earnings.
• It costs $7,000 to replace a salaried employee, $10,000 to replace a mid-level employee, and $40,000 to replace a senior executive.
• Reputation Costs: in a time of constant connectivity, information about your organization is easily accessible and will reflect the level of employee commitment and satisfaction to potential talent.
• As employee morale declines, the turnover rate increases thereby negatively affecting the reputation. In an age of increasing transparency, job seekers are able to easily determine what it’s like to work for a specific company.

Preventing a bad hire…

The act of hiring includes a lot of assumptions. Whether it is the validity of one’s resume or their response to a specific interview question, these deciding factors are more personal than objective. Whilst getting along socially with colleagues is important, it is not a strong predictor of job or team performance.

In order to prevent the costs of a bad hire, certain tools can help provide insight concerning the different work styles of potential candidates. Here at ThriveMap®, our product does just that. By comparing a candidate’s work preference with the team’s, the hiree can better assess the level of fit and specific work environment that will enable a potential candidate to thrive. With this tool, your organization will develop greater team harmony and avoid the heavy costs associated with hiring the wrong people.