Ortho companies make bad hires every day. Often, the interviewee that they see during the process is not the person that they get. Or maybe the person is good, but just doesn’t fit in with the team.
So what is the true cost of making a bad hire?
My estimate is $30,000 to $150,000 (math at bottom of the article).
Hiring the right talent is one of the most critical decisions a company can make. A good hire can boost productivity, enhance team dynamics, and contribute to a positive workplace culture. However, the repercussions of a bad hire can be far-reaching, impacting various aspects of your organization. Let’s delve into the real cost of a bad hire, shedding light on the financial, operational, and cultural consequences.
- The Financial Impact
When a company hires an employee, it invests not only in their salary but also in the onboarding process, training, benefits, and other associated costs. When a bad hire is made, these investments go down the drain. The financial toll of a bad hire can be significant:
a. Time and Training Costs: The onboarding and training process for a new employee can take weeks or even months. When a bad hire fails to meet expectations, it often necessitates starting the hiring process all over again, incurring additional expenses in terms of training, HR resources, and time spent by management.
b. Severance Pay and Legal Costs: Terminating an employee involves severance pay, which can be a substantial financial burden. Moreover, legal costs can arise if the termination process becomes contentious, leading to potential lawsuits or negotiations.
- Discontinuity in the Workforce
A bad hire can disrupt the harmony and productivity of your existing team. When a new employee is hired and then let go, it creates a sense of discontinuity within the organization. This can lead to several issues:
a. Decreased Morale: Existing employees may become demotivated when they witness a revolving door of new colleagues. They may question the company’s ability to make sound hiring decisions, affecting their job satisfaction and commitment.
b. Increased Workload: During the brief tenure of a bad hire, their responsibilities must be redistributed among existing team members. This can lead to increased workloads and stress for those left to pick up the slack.
- Eroded Confidence in Leadership
A series of bad hires can erode trust and confidence in the leadership team responsible for making hiring decisions. Employees may begin to question the competency of their superiors, leading to a lack of faith in their ability to steer the company in the right direction. This can have long-lasting repercussions on the overall company culture and employee loyalty.
- Loss of Business Execution
Every employee plays a role in the execution of your business strategy. When a bad hire occupies a position for even a short period, it can hinder progress and disrupt projects. This can result in missed deadlines, decreased efficiency, and a potential loss of revenue. Furthermore, it may take time to find a suitable replacement, exacerbating the impact on business execution.
The real cost of a bad hire extends beyond the initial investment in recruitment, onboarding, and training. It encompasses the financial burden of severance pay and legal costs, the disruption and discontinuity in the workforce, the erosion of confidence in leadership, and the loss of business execution. To mitigate these costs, it’s crucial for organizations to invest in robust hiring processes, including thorough interviews, background checks, and skills assessments. By doing so, they can ensure that they bring in employees who contribute positively to the company’s growth and success, ultimately avoiding the significant costs associated with bad hires.
Here is the math that resulting in $30,000 to $150,000.
The cost of a bad hire can vary significantly depending on various factors, including the position, industry, location, and the specific circumstances surrounding the termination. However, it’s important to note that estimating the precise cost of a bad hire is challenging due to these variables. That said, various studies and reports have attempted to quantify the cost of a bad hire.
Some estimates suggest that the cost of a bad hire can range from 30% to 150% of the employee’s annual salary. Here’s a breakdown of some of the expenses that contribute to this cost:
- Recruitment Costs: This includes expenses related to job postings, advertising, recruiter fees, and the time spent by HR professionals and hiring managers on the hiring process.
- Onboarding and Training Costs: These costs involve the time and resources required to orient the new employee, provide training, and ensure they are integrated into the organization.
- Salary and Benefits: This is the cost of the employee’s salary, benefits, and any bonuses paid during their tenure.
- Severance Pay: If the bad hire is terminated, severance pay may be required, which can include salary continuation and benefits.
- Legal Costs: In some cases, there may be legal expenses associated with the termination, such as legal consultation fees, settlements, or potential litigation.
- Lost Productivity: The biggest hidden cost of a bad hire is often the lost productivity of the employee while they are underperforming or the productivity loss due to disruption when they leave.
- Rehiring Costs: When a bad hire is let go, the process of finding a replacement begins, incurring additional recruitment and training costs.
To provide a rough estimate, let’s consider a mid-level employee earning an annual salary of $100,000. If the cost of a bad hire is estimated at 30% to 150% of their annual salary, it could range from $30,000 to $150,000. However, for higher-level positions with more responsibilities and higher salaries, the cost could be even higher.
Keep in mind that these estimates are general guidelines and not precise figures. The actual cost of a bad hire can vary widely depending on the specific circumstances and factors involved in each case. Nonetheless, it underscores the importance of making well-informed hiring decisions to minimize these significant financial impacts on an organization.