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The Costs of a Bad Hire

by Andres Monge, Accounts Director

September 26, 2023


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The Costs of a Bad Hire

Introduction

Hiring good technical professionals is a complex process with many added expenses. However, the cost of a bad hire goes beyond recruitment, onboarding, integration, and the initial salary, as it encompasses a series of direct and indirect costs that impact various aspects of the organization. In this article, we'll cover various aspects of the subject. But first, a simple question: 

What are the definitions of a good and bad hire?

A bad hire is related to the constant poor performance of a professional who does not meet the expectations of the position or doesn't integrate well into the company culture. The consequences can be damaging, as they reduce the team's productivity, interfere with its dynamics, demand more supervision and training, and cause financial losses for the organization.

On the other hand, a good hire refers to a professional who often not only meets but also exceeds the expectations assigned to their position. They positively impact the company, demonstrating strong ethics and aligning themselves with the organization's values and culture. Good hires show initiative, adaptability, and resilience, performing well independently or as part of a team. In this way, they require less training and supervision, increasing productivity and team morale and achieving the best results.

With these definitions in mind, let's look at the costs of a bad hire, covering various aspects from the first recruitment to the need for a replacement.

Financial Costs

A recent study from Career Builder reveals that over 66% of businesses experienced negative consequences due to a poor hiring decision last year, as noted by AOL Jobs. Among close to 2,700 participating companies, 41% believe that one unsuitable recruit set them back by $25,000. Meanwhile, 25% think such an unfortunate decision cost them upwards of $50,000. This doesn’t account for the morale drop among the workforce and the individual hired.

Recruitment Expenses 

Job posting values can vary depending on the platform used for posting, seniority, location, duration of the listing, and industry. Besides, job postings usually need promotion to attract more candidates using pay-per-click advertising, social media ads, or other online marketing methods. LinkedIn, for example, offers different types of job postings, such as:

  1. Single job posting: this is the basic plan for a single position. It can vary from $29 to $499 for a 30-day listing.
  2. Job packs: The price varies widely, but they purchase multiple job postings at a discounted rate, making them a cost-effective option for listing multiple positions compared to purchasing individual job postings.
  3. Sponsored job posting: promotes the job posting to a larger audience, including professionals who might not be open to work but would be a good fit for the role. The price also varies widely and is accounted for by cost per click (CPC) and cost per impression (CPI) models.

Hiring agency fees

Hiring agencies, recruitment agencies, or staffing firms help organizations find and hire qualified candidates for job openings. Typically, they charge fees that can vary based on several factors, including the position's seniority, the role's complexity, the industry, and the geographic location. The most common fee is a contingent fee calculated based on the hired professional's first-year salary. The percentage can vary, ranging from 15% to 25% of the salary. Although hiring agencies may represent additional costs, they can also save time, effort, and resources in the recruitment process by leveraging the agency's experience and network to find the best candidates.

Background checks and assessments

Background checks and assessment costs vary based on the extent of the information that needs to be verified. For example, the cost of a basic criminal background check can range from around $20 to $50 per check, depending on the provider. Credit check costs can range from $20 to $100, depending on the depth of the check and the provider. Confirming employment history costs around $10 to $30 per verification. Assuring the candidate's educational credentials and licenses can cost around $10 to $30 per verification. Drug testing values can vary based on the type of test, the location, and the number of substances being tested, ranging from $30 to $100 or more. Finally, the cost of personality and behavioral assessments can range from $20 to $100 or more per assessment.

Onboarding costs

The cost of integrating a new employee is high, covering various activities and resources to familiarize them with its culture, role, and responsibilities. Onboarding is crucial as it sets the tone for an employee's experience within the organization and can significantly impact their productivity and engagement. Failing the onboarding process can mean losing the employee in the short term and spending money for nothing. According to a survey conducted by CareerBuilder and Silkroad Technology, 10% of the interviewees left a job because of a poor onboarding experience. On the other hand, 69% of employees with great onboarding were more likely to stay in the company for more than 3 years. Although it is complicated to state an onboarding cost because it depends on role and industry, a study from  SHRM estimates that it's around $4,129 per hire, encompassing direct and indirect costs. 

Direct costs

  • Training and development: formal training sessions, workshops, and courses help the new employee acquire relevant skills and knowledge for their role.
  • Orientation materials: employee handbooks, manuals, and other resources.
  • Technology and equipment: tools, equipment, and technology, such as computers, software licenses, and other hardware
  • Travel and lodging: if the onboarding is in a different location, there will be costs related to travel, accommodation, and meals.

Indirect Costs:

  • Administrative: Managers, HR personnel, and other team members in charge of the onboarding process.
  • Productivity loss: Employees might take a while to be fully productive as they are still learning the ropes.
  • Cultural integration: Integrating the employee into the company's culture also generates costs as team-building activities.
  • Mentoring and coaching: A mentor or coach might be assigned to help the new employee adapt to their role and the company.

Lost Productivity and Performance

Ramp-up Time

Bringing a new employee into the company invariably requires ramp-up time. Its duration varies based on the complexity of the role, the individual's prior experience, and especially the organization's onboarding. Some employees might have prior knowledge that allows them to ramp up more quickly, but effective onboarding processes must be designed to help new employees succeed in their roles. This is a time when it's already possible to spot signs of a bad hire by paying close attention to the employee's performance and behavior. If issues arise, they should be addressed promptly.

Providing constructive feedback, guidance, and support helps employees understand their shortcomings and areas that need improvement. In the same way, offering additional training or resources if the employee's skills could be improved in specific areas. During those first stages, it's necessary to communicate performance expectations and standards, making sure the employee understands their role and responsibilities. This means monitoring the employees' progress by recording performance-related issues until they start showing some improvement.

If the employee's performance does not improve despite efforts to support them, consider implementing a formal Performance Improvement Plan (PIP). It outlines specific goals and expectations within a defined timeframe. It's also necessary to assess whether the employee's behavior aligns with the company's culture and values. Although these cases are less likely to happen, a cultural misalignment also can be a significant factor in poor performance. During this period of monitoring the new employee's progress, keep HR and relevant managers informed. They can provide guidance and support for managing the process.

Decreased efficiency

Mistakes and errors happen, no matter how skilled or experienced an employee is. There will always be instances where mistakes occur, and they should be handled constructively and supportively. But in the case of a bad hire, they can indicate more than natural situations in a work environment, especially if they are repeated and impact the whole team's work. In this context, it's important to address the situation promptly to minimize the adverse effects on productivity and morale. Some measures can be taken to understand those errors and their root causes deeply: 

  • Assessing the nature and frequency of the mistakes and errors.
  • Document specific instances, their impact, and the areas in which the employee is falling short.
  • Identifying the underlying reasons for the mistakes, like lacking the necessary skills, not paying attention to detail, struggling with the workload, or facing other challenges.
  • Addressing skill gaps and offering additional training, resources, or mentoring to help the employee improve in those areas.
  • Setting clear expectations with constant feedback to communicate the expectations for accuracy, attention to detail, and overall performance.
  • Ensuring the employee understands the standards they need to meet.
  • Increasing supervision and monitoring of the employee's work to identify issues early and provide immediate feedback.
  • Encouraging the employee to ask questions and seek clarification when unsure by creating an environment where they feel comfortable discussing challenges they're facing.
  • Scheduling regular check-in meetings to review progress, discuss challenges, and provide ongoing feedback.
  • Promoting collaborative problem-solving to find solutions to the challenges they're facing.

Customer and Client Impact

Maintaining strong client relationships is crucial for the success of a business, so addressing negative interactions promptly and effectively is essential. Dealing with a bad hire who has had negative interactions with a client can be particularly sensitive and impactful. To handle this, it's necessary to gather all the details about the negative interactions to understand the context, the issues that arose, and the damage to the relationship. If the negative interactions are severe and cause significant harm, it's mandatory to mitigate the damage by taking action to rectify the situation.

Communicating directly with the affected client and apologizing for any inconvenience caused is a way to assure them that steps are being taken to address the issue. Transparency is vital to maintaining trust. After that, developing a strategy for rebuilding and repairing the relationship is interesting, involving extra efforts to demonstrate improved service and responsiveness.

It's also necessary to conduct an internal investigation to understand what led to the negative interaction and determine if the issue was due to a lack of training, poor communication, or other factors. Increasing the supervision and monitoring of the employee's interactions with clients can help ensure that they are improving and not repeating the same mistakes. Pairing the employee with a more experienced colleague for a period of time is also an intelligent action. This allows them to observe successful client interactions and learn from their colleagues' experiences.

Suppose the employee's negative interactions continue despite efforts to improve and it becomes clear that they are not a good fit for client-facing roles. In that case, it's necessary to consider reassigning them to a different role within the organization or, in extreme cases, termination. Besides, such a situation can be a learning experience to improve hiring and onboarding processes. Identifying where the process fell short enables the organization to make adjustments to avoid similar problems in the future.

Disruption

Negative impact on colleagues

A bad hire can indeed have a negative impact on colleagues and the overall work environment. When an employee is not a good fit for the organization or the team, it can lead to various challenges and problems. The worst is the decreased team morale, in which colleagues become frustrated and demotivated by working with someone who doesn't contribute effectively due to their poor performance. This can create a negative vibe within the team. From this, there are other consequences, such as an increased workload for colleagues who also have to deal with the bad hire's tasks, which can lead to burnout and decreased job satisfaction among those who are shouldering extra work, affecting overall productivity and results.

In addition, a good hire might need help with effective communication, causing misunderstandings, delays, and inefficiencies in projects. This can hinder collaboration and impact the overall team's performance. Lousy communication causes negative attitudes to spread since they might influence others and lead to a decline in the team's overall mood and motivation. In addition, such a mess in the team's synergy can, of course, lead to conflicts and tensions, creating a toxic work environment and a lack of trust. This scenario also results in missed opportunities that impact the team's success and retention issues, contributing to turnover among other team members who are dissatisfied with the working conditions created by the underperforming colleague.

Replacing a Bad Hire

What is the cost of replacing an employee? If their performance does not progress during the specified period, if they continue to engage in problematic behavior, or if their mistakes continue to have a significant negative impact, one way to handle it is to consider reassigning them to a different role. But in extreme cases, it may be necessary to consider more severe action, such as termination.

It's essential to handle the termination process professionally and respectfully, providing appropriate severance if required by company policies or local laws. Ultimately, the goal is to address performance issues early on, provide support and opportunities for improvement, and make a decision that aligns with the best interests of both the employee and the organization. Managing the situation promptly and professionally will help mitigate the negative impact on team morale and overall productivity. Besides recruitment, onboarding, and probationary experience, other topics may generate significant costs for the company:

  • Employee engagement impact: employee departures can negatively affect coworkers and overall engagement, potentially lowering productivity.
  • Employer brand impact: high staff turnover damages your company's brand and attractiveness to potential employees.
  • Loss of organizational knowledge: employee departures lead to a loss of valuable organizational knowledge and expertise that's hard to replace.

That's why it's crucial to ensure that the rest of the team understands the situation and the steps being taken to address it. This can help prevent frustration and maintain team cohesion. Addressing the issue promptly, offering support, and providing opportunities for improvement can help the employee overcome their challenges and contribute more positively to the team's efficiency and overall success. 

Conclusion

In summary, the cost of a bad hire goes beyond recruitment and initial expenses, impacting various aspects of an organization. Addressing a bad hire promptly and professionally is essential to minimizing negative impacts. Companies can mitigate the multifaceted expenses associated with hiring and retaining the wrong employees by making informed hiring decisions, implementing effective onboarding processes, and handling performance issues proactively.

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