Understanding the cost of bad hires

Making a bad hire is a more common mistake than you might think in fact, 74% of employers admit to having hired the wrong person for a position. Beyond the immediate financial impact, there are numerous hidden costs and consequences of a poor hiring decision that affect the company’s bottom line and overall success. Recognizing these factors is crucial for businesses looking to improve their hiring processes and minimize their bottom line.

Cost per bad hire

The direct financial cost of a mis-hire can vary depending on factors such as salary, recruitment expenses, and training investments. According to the U.S. Department of Labor, a bad hire can cost your business 30% of a first-year salary and up to 50% for managerial roles, which depending on the position you are hiring for can range from tens of thousands to even hundreds of thousands of dollars.

Hidden costs of bad hires

In addition to the tangible expenses, there are several hidden costs associated with hiring the wrong person that are often overlooked:

1. Opportunity costs

   When a bad hire occupies a position within the company, it not only incurs direct costs but also prevents the organization from benefiting from the potential contributions of a more suitable candidate. This missed opportunity for productivity, innovation, and growth can have long-term repercussions, impacting the company’s performance and success.

2. Recruitment/training/onboarding costs

   An HR Benchmarking study by SHRM states that the average recruiting cost per hire is $4,683, without factoring in training and onboarding expenses. These costs encompass the allocation of valuable human resources towards the recruitment process.

3. Time

   Time is a valuable resource, and the process of hiring and onboarding a new employee consumes significant amounts of it. According to The Josh Bersin Company and AMS, the average time to hire is at an all-time high of 44 days. A mis-hire not only wastes the time already invested, but additional resources must be allocated to address performance issues, provide supplementary training, and potentially seek a replacement.

4. Legal risks

   Terminating an employee, particularly for performance-related issues, can expose a company to legal risks such as wrongful termination lawsuits or discrimination claims.

Consequences of Bad Hires

Mis-hires can have far-reaching consequences that extend beyond financial losses. Here’s a deeper dive into some of the internal impacts:

Impact on company culture

A mis-hire can disrupt the delicate balance of company culture. Every organization has its unique values, norms, and working styles. When a new employee fails to align with these cultural aspects, it can create tension and discord among team members. This can lead to a breakdown in communication, collaboration, and overall cohesion within the company.

Decreased productivity

An underperforming employee can significantly impact productivity levels within a team or department. According to a study by Career Builder, 60 percent of bad hires occurred because the employee could not produce the level of work required by the employer. This decreased productivity not only affects the individual’s output but also hampers the efficiency of their colleagues who may need to pick up the slack.

Damage to morale

Morale within a team or organization can take a severe hit. Employees who witness a colleague consistently underperforming or causing disruptions may become demoralized and disengaged. This can lead to a negative work environment where team members feel undervalued, frustrated, or even resentful towards management for allowing the situation to persist.

Stagnation

Bad hires can impede progress and innovation within an organization. When team members are forced to spend time and resources compensating for the shortcomings of a poorly performing colleague, it detracts from their ability to focus on creative problem-solving and forward-thinking initiatives. This stagnation can hinder the company’s ability to adapt to changing market dynamics and stay competitive in its industry.

Affect relationships with clients

Clients expect professionalism, reliability, and quality service from the companies they work with. If a bad hire is directly involved in client-facing roles or projects, their incompetence or lack of commitment can damage trust and credibility. This can lead to client dissatisfaction, loss of business, and even tarnish the company’s reputation in the market.

Solution for successful hiring

Pre-employment assessments

Pre-employment assessments are crucial for improving hiring success. They serve as a strategic tool in the hiring process, offering valuable insights into candidates’ skills, competencies, and cultural fit before extending job offers. By leveraging a combination of psychometric tests, situational judgment assessments, and job simulations, employers can gain a comprehensive understanding of candidates’ capabilities and potential alignment with the role and company culture.

By identifying candidates who possess the requisite skills and traits for success in the role, pre-employment assessments help organizations minimize the risk of hiring mismatches and turnover. These assessments streamline the hiring process by narrowing down the candidate pool, saving time and resources. This not only accelerates the time-to-hire but also enhances the overall candidate experience, reflecting positively on the employer brand.

Ultimately, pre-employment assessments serve as a proactive measure to mitigate the costs and consequences of poor hiring decisions. By making data-driven hiring choices aligned with strategic objectives, organizations can build high-performing teams and drive sustained business success.

Components of an effective pre-employment assessment

1. Validity and Reliability

   The assessment must be scientifically validated to measure the desired attributes and deliver consistent results over time.  Validity ensures that the assessment accurately predicts job performance, while reliability ensures consistent results regardless of when or how the assessment is administered.

2. What’s Being Measured

   The assessment should measure the job’s unique demands, evaluating the skills, competencies, and behaviors essential for success in that role. It should assess job-related abilities, such as cognitive, personality, and technical skills necessary in the role.

3. Customizable Solution

   The assessment provider should offer the ability to create custom benchmarks for the organization. This ensures alignment with diverse roles and industry requirements while maintaining the assessment’s validity and reliability.

4. Bias Mitigation

   The assessment should be free from biases related to factors such as gender, race, ethnicity, or age. It should provide fair and objective evaluations of candidates based solely on job-related criteria.

At Prevue, our assessments embody these principles, providing valuable insights into a candidate’s personality, cognitive abilities, and job fit, helping to identify the most suitable candidates for a role. By implementing Prevue Assessments, companies can increase their chances of making successful hires and lead to an overall stronger bottom line for the organization.

Click here to learn more about how our assessments can help you take the guesswork out of hiring.