Bad Hires Equal Lost Revenues

When a company brings a new person on board it costs money, even when the right person is hired. What every company needs to understand, is that bad hires have much higher costs that can quickly snowball into thousands or hundreds of thousands of dollars.

The High Cost of Bad Hires

According to a paper by Synergy Solutions, Top 5 Hiring Mistakes & How to Fix Them, “Estimates of cost to a company for a bad hire range from 2x to 7x the cost of a person’s salary and benefits.” Additionally, a survey by the American Management Association estimates that the costs associated with hiring and training employees can run anywhere from 25 to 200 percent of the yearly compensation.

The Breakdown

The costs of a bad hire have far reaching aspects that may not always be considered. EGR International points out six costs in its white paper, The Economics of Retention, that can add up to a large loss for any company.

1. Pre-departure costs: These are the costs of reduced or lost productivity when an employee uses company time to job search or just slacks-off due to discontentment or inability to do the job.
2. Termination costs: This includes payment for accrued time off, unemployment tax impact and various other related costs.
3. Recruitment costs: Recruitment costs include advertising, pre-employment screening, interviewing, background checks, relocation and hiring bonuses.
4. Training costs: Training costs can be significant and include resources to train the new hire and lost productivity during the training period.
5. Productivity costs: New employees have a learning curve which reduces their productivity as well as takes time from other sources including other team members and supervisors.
6. Vacancy costs: When a position is vacant, there are no earnings and the longer it is vacant, the greater the cost. Vacancy costs include lost sales and productivity.

Why?

So, if making bad hires is so costly, why does it happen so often within companies? Robert Half International, a leader in professional staffing services, researched several reasons that the wrong person is put into a position. Here are a few:

1. Incorrect Job Description: Many companies simply regurgitate job descriptions while over time the job details have changed considerably. This can result in the right hire for the wrong position. Job descriptions should be revisited before every hire to ensure they reflect the current needs of the company.
2. Mismatched Skills:  According to a poll by Robert Half, 36 percent of executives surveyed believed that mismatched skills were a top reason for bad hires. Interviewers need to get in-depth detail on a job candidate’s skills including how they were obtained and used in previous positions.
3. Failing to Check References: Many times a hiring manager will have an instant rapport with a job candidate and skip important steps in the pre-employment screening process like reference checks. Each HR department should have an interview process outlined that is followed consistently for every candidate.

What can be done?

While the art of avoiding bad hires may never be perfected, there are ways to increase the probability of hiring the right person the first time. Here are just a few suggestions hiring managers can utilize to make a smarter hire:

1. Work with a recruiter: Recruiters typically have a specialized area. Working with an experienced recruiter to identify the exact skill set desired can reduce time and money spent on the interviewing process and increases the chance of matching the right candidate to the position.
2. Look past the resume: Just because someone looks good on paper doesn’t necessarily mean they’re right for your company. Make sure the candidate has the same core values and beliefs that are followed by the company because a clash in values could result in bigger issues down the line.
3. Use pre-employment screening tools: According to the Wall Street Journal, “Eight of the top 10 U.S. private employers now administer pre-hire tests in their job applications for some positions.” Assessment testing can be a useful tool when deciding on the right hire. Additionally, in 2008 SHRM reported that “more than 85 percent of large companies and a rapidly growing number of smaller employers perform some form of background screening today.” Using these tools will give a clearer picture of the candidate and ensure that the education and experience notated on a resume is valid.

At Sentinel Background Checks, we offer a wide array of screening services for your business and are happy to customize a plan that will be best suited to your organization’s hiring process. Call us to discuss your needs today.