Have You Budgeted for Bad Hires
The U.S. Department of Labor calculates that the cost of a bad hire is approximately 30% of the first-year annual salary of that employee. For example, if a company hires a Manager whose salary is $100K, the estimated cost is a hefty $30k. Although this cost is significant and easily measured, there are residual costs associated with having a bad hire.
- Cultural Costs – How much damage to the work environment did this individual create? The workplace is a delicate ecosystem that needs to be properly managed to ensure high productivity, retention and creativity. Toxic elements can have damaging influence on others that may lead to decline in these areas.
- Production Cost – Companies sell products and/or services. Hiring the wrong employee(s) can negatively impact the quality and quantity of the products and services. This can have an adverse effect on the company’s bottom line and arguably more importantly on its internal and external reputation.
- Brand Exposure – Bad hires can negatively impact a company’s brand. Internal and external damage created by the direct or indirect cause of these employees can be far reaching. These kinds of negative impact are hard to measure and for startups or companies new to the industry they can be detrimental. Market reputation has a direct correlation to profitability. Therefore, Brand protection is critically important.
The hiring process can be intense. There is a lot of time, effort and resources that usually goes into an HR decision. Hiring is not an exact science and is probably more subjective that most will admit, but most in human resources will take a systematic approach. Although there are variances in the hiring practices, most will include some elements of the following:
Job Post: company issue the description of the position available with requirements and qualifications. The post usually has a closing date, which is when the company will stop receiving inquiries about the job.
Resume Review: Companies collect the resumes of applicants and review them to select qualified candidates for the position. This process can be labour intensive depending on the number of applicants. It also require critical review skills in order to be thorough.
Hiring: After the interview process is complete, companies usually have a team of people review all the credentials and notes regarding those that interviewed and issue a job offer. The individual that is selected can accept the offer or decline it. If the offer is declined the number two candidate usually gets the offer. If the offer is accepted others in the interview process is informed that they will not be receiving an offer.
On-boarding: Regardless of experience, employees new to an environment should receive some level of job training. Procedures, policies and environmental knowledge need to be downloaded. This helps with a smoother transition and easier assimilation. The period of time for on-boarding varies and could last as long as a calendar year.
The Old saying that “time is money” should be a foundational principle in HR. When a job is posted firms usually receive several resumes that must be filtered to determine who are the “qualified” candidates to move on to the next step (interview). This first step has many potential dangers. First, a critical flaw of some job posting is that they don’t clearly list the description and requirements of the job. Equally, some fail to give a clean description of the kind of candidates that should apply for the job. These failures could lead to receiving resumes from a lot of unqualified individuals. Contrary, it may dissuade a lot of qualified ones from applying.
The resume review stage is very important. Most HR officials will have key components that they look for when reviewing resumes. This helps them determine who moves to the interview stage. Things like education, job history, listed skills, and length of time on a job(s) may be influencing factors. Although a resume review system may be employed, high volume could enhance the likeliness of inaccuracy. Reviewing several resumes could create a situation where some highly qualified candidates can be overlooked, disqualified because of technical reasons (resume errors, presentation style or layout, etc.) or not even reviewed. Contrary some unqualified or under-qualified candidates may be advanced in the process. With these possibilities, the resume review process might yield an average to below average interview pool. This enhances the possibility of making a bad hire.
Northwestern University published a report that suggested some mechanisms to help minimize the chances of making a bad hire. In this report it is suggested that using a staffing service or personnel company can help mitigate the costly error of bad hires. Personnel Companies can bring many value-adds to the process:
- Access to a large talent pool
- Multi-layered resume review process that accurately filters candidates
- Thorough interview and reference check processes
- Drug and Competency screening
- Ability to carry employees on payroll during a trial period (eliminating some payroll costs to companies)
- Saving the cost of advertising for a position (s).
Hiring is not an exact science. Regardless, of the thoroughness of processes, mistakes can be made. It is very important that companies strive to incorporate the most efficient process that they can in order to minimize the odds of making a bad hire. Using internal and external tools can save a lot of time, money and collateral damage. Companies experience natural (planned) and unexpected attrition. Compounding HR stress with bad hires can be detrimental to a company. And, most don’t want to add ‘bad hires’ as a part of the budget line.