The cost of quality: how much the wrong hire is really costing you

Most managers understand that there’s an investment — of both time and money — associated with the recruiting, hiring and onboarding process. They also understand the negative consequences that result when a recent hire doesn’t end up sticking around.

However, while employee turnover that results from a poor hiring strategy has been deemed and understood to be a costly problem by some organizations, many companies have yet to take a critical look at the impact of bad hiring decisions on their business, much less taken the steps to solve the problem.

Time to face the music: Bad hires are costing your company more than you might think. Here’s how:

  • You’ve Started a Pity Party — There are few situations where an employee’s departure would result in anything other than decreased morale for his/her colleagues. Even if the individual hadn’t built close personal relationships with co-workers, the thought of taking on a part of another person’s workload without offering any type of benefit for sticking around or pitching in is not only frustrating, it’s costing you money.

In the wake of an employee’s departure, there is often a lull in productivity, despite a potential increase in demand for assistance from other team members. As productivity lulls and morale sinks, those left to step up might consider the idea of leaving too, distance themselves from managers who seem to be expecting a teamwork mentality at the worst of times or just become disengaged with their own role and responsibilities.

If you think the financial implications of these situations are negligible, think again. Research firm Gallup, Inc. estimated that there are 22 million actively disengaged employees costing the economy as much as $350 billion per year in lost productivity — and these costs are separate from the expense associated with replacing a bad hire.

  • You’re Making it Harder to Hire Top Talent — You’ve finally realized the individual you hired isn’t the right fit and are searching again for the team you’re managing or hiring on behalf of that fits in well.

You find an excellent candidate and are disappointed when the candidate turns down the opportunity to interview — or worse, when they turn down the position after additional resources have been spent recruiting and interviewing him/her.

After scouring emails and begging the recruiter/HR director for answers, you find out your dream candidate turned down the opportunity due to negative feedback about the company. Maybe they sourced negative commentary from current or past employees on social media, on Glassdoor, in forums or elsewhere.

What matters more than the venue in which the poor reviews were shared is that current or former employees ill-suited to your organizational culture or job requirements are unhappy for one reason or another — whether still on the job, voluntarily separated or fired.

In the digital world we live in, it’s too easy to rant about it for anyone and everyone — including the candidates you were set to hire— to see. The negative impact that a bad hire can have on your employer brand can be extremely detrimental and difficult to remediate. The only way to avoid it? Don’t hire them to begin with, but in this fictional (though all-too-common) example, the damage had already been done.

  • Cold, Hard Costs — Although there is some level of cost involved in each of the scenarios described above — poor employee morale and damaged corporate brand reputation — there are potentially significant budget impacts associated with an employee’s departure.

While the cost to replace employees will certainly vary based on his/her salary, experience and other factors, a recent study found that the cost of replacing an employee with a mid-range salary ($30K-$50k/year) is about 20 percent of their annual pay.

That means replacing the wrong candidate for a $40K manager position will cost around $8,000, and it only goes up from there — revisiting the hiring process for a position that requires a highly educated executive position can cost upward of twice the annual salary of the employee who departed, according to the Center for American Progress, “There Are Significant Business Costs to Replacing Employees,” November 2013.

While the process of examining the costs associated with bad hires can be a daunting one, it’s essential to overall improvement of the recruitment, hiring and finance operations. Although hiring today — against a backdrop of ubiquitous access to social media, prevalence of sites like Glassdoor and competition for top candidates — certainly has its challenges, it also has its advantages.

Technology has enabled incredibly intelligent talent acquisition solutions that go beyond hosting data. By harnessing the power of data, and integrating cross-platform tools tied to job boards, video screening, social media, mobile enablement and many others, businesses can find the right fit more often, much faster and with fewer associated risks.

Colin Day founded iCIMS in 1999 and is the company’s president and CEO. He has twice received Human Capital Magazine’s HR Future Leaders Award. He has also twice been rated one of the top 5 forward-thinking innovators in Fast Company Magazine’s Fast 50 Readers Challenge. Visit www.iCIMS.com.