The Cost of a Bad Hire

Hiring can be one of the most important decisions a manager makes. While most would agree with this statement, many managers have a story (or two) to share about one of their bad hiring decisions. In fact, according to a 2017 CareerBuilder Survey, 74% of employers say they have hired the wrong person for a position.

There are many tools available to calculate the cost of a bad hire. While not exact, the U.S. Department of Labor’s estimate is simple – the average cost of a bad hiring decision is at least 30 percent of the individual’s first-year expected earnings. If you take an employee with an annual income of $50,000, the cost to the organization can be $15,000. Others argue the cost is actually greater. Why the debate? Because some expenses are easy to quantify, and others are not.

• Time and expenses associated with onboarding & training new employees
• Hours spent reviewing resumes and interviewing candidates and recruitment advertising fees
• Time and energy managing poor performance
• Drain on productivity from disrupted projects and lack of continuity of work
• Impact on team morale and stress
• Risk of diminished customer service
• Increased risk of legal fees from unlawful termination or discrimination claims

So, knowing the downside, why do we continue to see bad hiring decisions? The same CareerBuilder survey provided some insight: 35 percent knew the candidate didn’t have all the needed skills but felt they could learn quickly; 32 percent took a chance on a nice person; 30 percent felt pressured to fill the role quickly; and, 29 percent focused on skills and not attitude.

What can you do to improve your odds?

While there is no magic bullet, there are techniques managers can use to reduce the likelihood of hiring the wrong employee.

1. Implement a Rigorous Selection Process

Hiring processes are structured in many different ways. The number of steps in the process, and the types of assessments used to evaluate candidates, vary depending on the type and level of position. However, ensuring rigor and consistency in the process is critical to making better hiring decisions. Instincts can be powerful, but they aren’t always right. A few common assessment types include:

• Behavioral-based Interviewing – This interviewing technique is built on the premise that ‘past behavior predicts future behavior’. Interviewers evaluate candidates against the competencies needed to be successful, and their motivational fit for the role or organization. During the interview, candidates are asked to provide concrete examples demonstrating their abilities in previous positions. Trained interviewers can spot incomplete or hypothetical answers and ask follow-up questions to get complete information. Northwestern offers A.R.T. of Interviewing training, a half-day class, teaching the basics of behavioral-based interviewing, as well as ways to ensure a positive candidate experience through the interview process.
• Skills Assessments – While not appropriate for all positions, formal skills assessments can be valuable in evaluating a candidate’s competency level in a specific task or software. If you are hiring an administrative assistant that needs to create presentations and proofread documents, you may consider administering a skills assessment in Microsoft PowerPoint and Clerical Proofreading. Northwestern has access to a bank of validated skills assessments for these purposes. Contact your Talent Acquisition Partner to learn more.
• Reference Checks – Reference checks can provide valuable insight about how a potential employee will perform, or behave, once they join your department. They can also affirm feedback from the interview process, and validate the information provided on a resume or application. While some question the value of reference checks, the timing matters. It is recommended you initiate reference checks during the interview process, rather than waiting until the offer stage. By the time you are at offer, you are emotionally invested in the candidate and may not receive the feedback in the same way. Although traditional reference checks can be time consuming, Northwestern has partnered with SkillSurvey, the leading reference solution provider in higher education, to make the process fast and easy. The automated data-driven reports empower hiring managers to make better hiring decisions. Contact your Talent Acquisition Partner to begin using SkillSurvey for your reference checks.

2. Don’t Sacrifice Quality for Speed

While supporting hiring activities, it is common to hear statements like ‘I need someone quickly, just get me anyone who knows Excel’. Too often, hiring managers are so anxious to put a body in a chair that they overlook a candidate’s flaws and hire someone who doesn’t really meet the needs of the job. The reality is, leaving a position vacant is better than bringing someone in who cannot perform the role. Poor performers require more energy and effort from the manager and peers – a manager may put their own productivity and performance, or that of their team, at risk to keep a poor performer afloat. Slow down to find the right person. It will be better in the end.

3. “Try Before You Buy”

Using a temp-to-hire approach may be beneficial for some roles. It provides the opportunity to hire someone on a temporary assignment to evaluate if the candidate is able to meet the needs of the job prior to making a longer-term commitment. This approach can work well for entry-level roles when candidates have little, or no, relevant work experience. It can also be a great option for administrative positions where organization, time management, and resourcefulness skills are imperative. Evaluating a candidate in a real-world scenario is always be more reliable than interviews and assessments alone. The HR Talent Acquisition team has a Temporary Staffing Service to assist managers in sourcing and screening applicants to fill temporary needs. The in-house service offers rates that are a fraction of those of third party vendors and much less than the cost of a bad hire. Unlike third party staffing agencies, Talent Acquisition does not charge a conversion fee for transitioning temporary employees into regular staff roles. Contact your Talent Acquisition Partner to learn more.

Most managers will make a bad hiring decision at some point in their career. There is no formula to ensure that every hire is a great one. However, if you invest the time and effort to conduct a rigorous and consistent hiring process, the chances of making a great hire improve drastically.