Bad Hires: Data, Costs, and Avoidance Tactics

Jun 14, 2012

The adage goes, “if you hire clowns, you will end up with a circus.” Not just a circus but a really expensive circus.  Let me start with the generalist statistic from PR News (2012).  Of new hires, 46% fail within 18 months.  Of new hires another 45% are only fair to marginal performers.  That means that 81% of new hires are a disappointment.  That is a really big number and comes at even bigger costs.  The cost of a minimum wage bad hire has been cited to be $4,500 and change.  Research in 2010 suggested the costs could be anywhere from 20% to 200%.  In a survey conducted by Harris Interactive identified that 41% said a bad hire cost more than $25,000 and 25% identified the cost was over $50,000.

A mired of factors contribute to the cost of a bad hire, and we can quickly conclude that some of them are writing and replacing a job ads, screening candidates, phone calls and emails, arranging and conducting interviews, checking references and so forth.  Most further understand that the impact and cost runs deeper, into area that are difficult to measure such as training, client impact, cultural impact, relocation, signing bonuses, and time.

The participants in the Harris Interactive research identified some of the costs:

  • Less productivity – identified by 41 percent of participants
  • Lost time to recruit and train another worker – 40 percent
  • Cost to recruit and train another worker – 37 percent
  • Employee morale negatively affected – 36 percent
  • Negative impact on client solutions – 22 percent

 

Moreover a bad hire can impact below the surface in two distinctly damaging ways: first, bad hires may be less adaptive to change, distracting positive contributors, affecting the level of equilibrium of contribution in an organization.  Secondly, bad hires affect the confidence of leaders – not to mention stress levels – an effect that often flows down management.

Asking the question “why a bad hire happens?” should be part of the HR recruiting process.  The stage is often referred to as a postmortem or review, however this are a rare event in many processes, regardless of function, leading  to these common reasons for failure:

  • Need to fill the job quickly – identified by 38 percent of participants
  • Not sure, sometimes you make a mistake – 34 percent
  • Insufficient talent intelligence – 21 percent
  • Didn’t check references – 11 percent

Of course urgency is the biggest reason for a bad hire, but it should not be.  HR process and policy should be encouraging a continuous talent pool from which to draw upon.  More over strategy communications are usually the cause and HR is surprised by resource requests.  The physical impact of a surprise is increased heart rate and ultimately a reaction that is impulsive – not strategic – placing HR function and recruiters (internal or external) into a scramble frame of mind.

 

Can we eliminate bad hires?  Not entirely, however, reasons such as “did not check references,” “need to fill the job quickly,” and “insufficient talent intelligence” is far too often cited as the reasons.  The only truly reasonable excuse is – “sometimes we make a mistake” –as people but not as process that is following strategy.  To help avoid the costs of bad hires, which increase exponentially with the time a bad hire remains active, the following tips are compiled to help guide hiring managers and recruiters.

 

  1. No Hiring Strategy: Without a hiring strategy we unconsciously gravitate to hiring people who share our personality traits, which can lead to clash of personality and a division of expectations.
  2. We make decisions in 60 seconds: When urgency is the driver of a decision the decision will never be the best one…pressure from others can create a situation where urgency becomes pressure and pressure leads to bad hires.
  3. We fall in love with a resume – Experience is not expertise and certainly not attitude.
  4. We don’t interview for behavior:  The focus of experience vs. DNA.  You can change experience but you cannot change personality and need to interview for personality. Skill matching can be appropriate but behavioral matching must be ‘dead on right.’
  5. We leave the candidate in the comfort zone: work is not in the comfort zone and by asking standard questions, such as, “tell me about your strengths?” the candidate has an advantage and we cripple our ability to evaluate.
  6. We comfort ourselves with a group decision: A structured process must have structured questions and flow to ensure HR has four perspectives instead of one perspective 3 or 4 times using the same questions.
  7. Take time to figure out what you really need: A position description is not the same as an ideal candidate.  Create a checklist of all the aspects of what your organization is seeking in this new hire.
  8. Don’t hire a victim: A person with victims disease believes it is always someone else faults.  Watch for blame placing to avoid hiring a victim, if they have experience as a victim, chances are the experience will be used.
  9. Create a great first day: Give the new candidate a fighting chance and a great first day can create the foundation for delivering on expectations.  New situations carry great anxiety limiting performance – remove barriers to success.
  10. Lastly, be prepared to fire fast: The cost of a bad hire increases the longer they are employed.  Spend time with the new hire in the first few weeks, this will limit the exposure to greater costs of a bad hire

 

The first step to realizing the cost of bad hire is to understand that cost is ultimately the leaders responsibility, so learn from the fault, do a post-mortem on the process, close the gaps, fill the leaks, build strong and confident recruitment partnerships thereby decreasing the costs of bad hires.

 

Darryl Moore

Executrade – Your Recruitment Specialists

www.executrade.com

 

References:

http://www.mindflash.com/blog/2012/01/infographic-the-staggering-cost-of-a-bad-hire/?view=mindflashgraphic

Rich Greenwald (Oct, 2010), How Much Does a Bad Hire Really Cost.

http://www.prnewswire.com/news-releases/interview-expert-stephen-moulton-says-hiring-mistakes-cost-big-bucks-138928259.html

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