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The Cost of a Dire New Hire

Bad new hire throwing away money

About a year ago, we wrote about the red flags found in a dire new hire – those disillusioning revelations that make employers second guess their interviewing skills and ability to judge character – and what steps can be taken to remedy the situation. In this article, we’re reinforcing the need for solid screening and interviewing practices by attaching a price tag to the problem – which adds up to a lot more than you might think.

Wasted wages

The first expense that comes to mind regarding a poorly chosen new hire is wasted wages. But just what does that add up to for the average business? As Canadian numbers are hard to come by, it’s worth looking at some American findings, not for specific salaries, but to take note of certain trends. For instance, the US Department of Labor found that a bad hire costs the employer about 30% of the employee’s salary within their first year of work, and according to the National Business Research Institute (NBRI), the higher the salary, the higher the cost. The NBRI found that a bad new hire making between $110,000 USD and $130,000 USD per year can cost their employer between $152,000 USD and $220,000 USD per year. In the worst examples, a bad new hire can cost up to five times their salary.

Where the money goes

Of course, there’s a lot more to the cost of a bad new hire than just their salaries and benefits. Most commonly, organizations find their dollars going down the drain because of the following issues caused by bad new hires:

  • Lost productivity
  • Sub-par work
  • Time and money associated with recruiting and training efforts
  • Decreasing office morale due to bad intra-office relations
  • Bad client relations
  • Attendance issues.

Essentially, in addition to producing poor work and wasting management’s time, bad new hires leave a bad taste in the mouths of their customers and their coworkers, leading to ramifications that can have immeasurable effects. You may think you can count the clients lost by a single employee, but you can’t account for what that lost client said to another potential client about their experience with that employee. It’s also important not to underestimate the effects of bad employee morale. One bad apple can spoil the whole bunch because even your best workers’ efforts can be compromised when they avoid dealing with a bad coworker. They may even be more easily lured away from your organization if the situation is sufficiently aggravating.

Why are bad new hires hired at all?

The most commonly cited reasons for why organizations make bad hiring decisions in the first place are:

  • Someone was needed right away
  • Proper aptitude testing did not occur
  • References were not checked.

These reasons all point to haste, but ironically, employers are taking more and more time to hire anyone at all, at least in the US. And considering certain economic parallels between Canada and the US, Canadian employers should take note of what is occurring there. According to the January 2014 New York Times article, “The Endless Interview Process” by Catherine Rampell, the average interview period in the US increased from 13 days in 2009 to 23 days in 2012. According to Rampell, some believe this phenomenon is reflective of a skills gap between what employers are looking for and what employees have to offer – a popular topic of debate in Canada – while others believe employers are married to impossibly high standards for fear of making a bad new hire in a fragile economy.

But therein lies the irony: lengthier hiring processes keep managers from their core, revenue-building duties for longer, and they also provide faster-hiring organizations, including competitors, to pilfer good candidates – something more easily done when such a candidate has been left hanging for so long that they feel alienated by the other organization’s excessively slow hiring process.

How to properly prevent making a dire new hire

Clearly, dragging out the hiring process is not a prudent way to prevent hiring the wrong person. Rather, the key to careful and efficient hiring is putting the right practices into place. They include:

  • Paying close attention to resumes

    To reduce the hassle that is resume screening, hiring managers should be trained to scan for the most pertinent information while ignoring the fluff. Click here for a few tips on how to properly screen resumes.

  • Asking the right questions

    Both over the phone and in-person, interview questions should focus primarily on two areas: skills and organizational fit. Skill questions evoke answers that demonstrate the candidate’s knowledge and ability to perform the specific duties of the job in question. If the role is technical, and the hiring manager isn’t an expert in that area, he or she should either have an expert sit with them in the interview or receive advice from them about what to ask. Compatibility or “fit” questions should have the candidate talk about their preferences regarding management styles, propensity for teamwork, flexibility, and even office design, to name a few factors.

  • Leveraging psychometric tests

    Building on the information gathered through interview questions on compatibility, psychometric tests delve deeper into a candidate’s behavioural tendencies. They more objectively measure personality, interest, motivation, and capacity to accomplish certain tasks. They’re also particularly useful for comparing candidates who are running neck-and-neck. There are also psychometric tests for assessing skills – a must, particularly for more technical roles.

  • Checking references

    There’s really no excuse for not checking references. As mentioned above, it’s one of the main reasons organizations hire the wrong the person. References are one of the most objective ways to verify the truth about someone’s work experience and behaviour, particularly if the reference is the candidate’s former supervisor. Questions for references should address the candidate’s former responsibilities, their qualifications regarding their potential responsibilities, how long the candidate worked with the reference, their attendance record, their strengths, their weaknesses, and how they reacted to criticism.

By sticking to these criteria, organizations can thoroughly and efficiently bring aboard quality new hires, minimizing managers’ time to screen, interview, and train, ensuring optimal productivity and quality of work, saving precious dollars while making even more, and ultimately remaining competitive in an ever more demanding market.

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