The Cost of a Bad Hire: Beyond the Financial Impact
This article was updated on August 7, 2018.
Between recruiting, training and covering the workload of the employee who departs, the cost of a bad hire can be significant. Forbes notes that the cost of a bad hire could be anywhere from 30 percent of the employee's salary to as much as $240,000, depending on the position and industry. However, the highest costs of a bad hire may not be financial.
The Impact Morale and Productivity
The Society for Human Resource Management (SHRM) reports that 95 percent of executive leaders say a poor hiring decision impacts morale, and 35 percent say it greatly impacts morale. For finance leaders, 39 percent are most concerned with reduced staff morale and 34 percent are concerned with a decline in productivity.
Here are five steps HR leaders can take to help their existing employees after a bad hire departs.
1. Develop a Workload Redistribution Strategy
When a full-time employee leaves, remaining team members have to pick up the slack. For example, if someone in technical support doesn't work out, the remaining team could end up dividing customer service calls among fewer responders. This results in longer wait times, dissatisfied customers and higher stress levels for employees trying to help them. Promptly addressing how workloads will be distributed to minimize the stress on any single employee and keeping projects moving forward can help reduce the impact at work.
2. Look for Ways to Eliminate Overwork and Skills Gaps
Hiring a full-time employee takes time, but temporary solutions can help close gaps in your team's available skill set and workload. HR leaders can help reduce overwork by looking for stop-gap solutions while they recruit. Options include hiring temporary help, bringing on a freelance or contract employee or outsourcing work to an agency or partner.
3. Manage Your Reputation
Employee turnover can affect morale. When your team has concerns about your organization, they often voice those to family, friends and professional contacts. Clients who see a rotating staff may also have concerns about your organization's culture, stability or long-term sustainability. It's important to carefully manage your reputation — and that process begins with HR.
Work with the departing employee, and if possible, help them on to the next position. Consider whether offering severance to the departing employee might make the transition smoother for everyone. See if there is a way to make the transition smoother for everyone.
Employers should also take a proactive stance on employer branding — using technology, digital marketing and outreach strategies to build strong, positive reputations in the communities and industries where they do business. An enterprise with a strong reputation attracts the best talent and can counterbalance concerns associated with turnover.
4. Encourage a Culture of Recognition
Appreciating employees and showing them they are valued helps sustain challenges like an occasional bad hire. Take the time to make sure you're investing in your organization's approach to employee recognition. This starts with major items such as compensation and benefits, and traditional forms of recognition such as awards for length of service and extraordinary contributions. Day to day recognition is also important, such as coaching your management team on how to interact with employees and making a point of saying thank you. When an organization builds a strong culture where individuals feel valued, they're more likely to weather storms.
5. Develop Feedback Loops
Finally, firms can help manage the influence of bad hires by showcasing the steps they are taking to avoid more bad hires. Ask for feedback, figure out what went wrong and track "quality of hire" as one of your recruiting metrics. As part of your internal employer brand activities, share what steps you're taking to ensure you bring on the right people.
For example, if you know you've hired people with weak technical skills, consider adding skills testing to the screening process. If you have had personality problems, consider whether you have the right people doing interviews and look at tools to help find and create productive teams. Build trust by admitting the mistakes and being transparent about how you are addressing them.
A bad hire can affect a business on multiple levels. Taking the steps to mitigate the negative impact on productivity and morale is just as important as hiring the right talent to begin with. HR leaders who proactively focus on managing the fallout from a bad hire at the team level can have long-term success in building both a strong internal culture and a positive reputation.