How Employers Can Avoid a Bad Hire

A bad candidate has both measurable and hidden costs.

There are two forces on the jobs horizon that are about to collide. Today and for the next seven years, there are plenty of job openings and according to a recently released poll, many people currently employed will be exploring those job openings. In many cases, this will create both a happy new employer and a happy new employee. However, some companies will hire the wrong employee and create an unforeseen ripple effect that can damage an organization while the employee is working there and beyond. The cost of a bad hire has both measurable and hidden costs.

How can employers recognize a potential bad hire? It’s simple really. That employee is currently working for your competitor and is looking to move on. A vast majority of employees plan to pursue new job opportunities in 2014, according to a recent poll by Right Management, with 83 percent of the nearly 900 workers who participated in the online poll say they intend to actively seek a new position in 2014.

Several  industries are desperate to hire new employees. Consider the following facts from the U.S.. Bureau of Labor Statistics, and it’s not hard to image another company’s poor employee becoming your company’s next “Star” recruit.

  • Manufacturing currently has more than 600,000 unfilled jobs.
  • Over the 2010-20 decade, 54.8 million total job openings are expected. While growth will lead to many openings, more than half — 61.6 percent — will come from the need to replace workers who retire or otherwise permanently leave an occupation.
  •  In 4 out of 5 occupations, openings due to replacement needs exceed the number due to growth. Replacement needs are expected in every occupation, even in those fields that are declining.
  • Nonagriculture wage and salary employment, which accounts for more than nine in 10 jobs in the economy, is projected to expand to 150.2 million by 2020, up from 130.4 million in 2010.
  • The “prime-age” working group (ages 25 to 54) is projected to drop to 63.7 percent of the 2020 labor force. The 16- to 24-year-old age group is projected to account for 11.2 percent of the labor force in 2020.
  • The health care and social assistance sector is projected to gain the most jobs (5.6 million), followed by professional and business services (3.8 million), and construction (1.8 million). Despite rapid growth in the construction sector, employment in 2020 is not expected to reach its pre-recessionary annual average peak of 7.7 million in 2006.
  • More than two-thirds of all job openings are expected to be in occupations that typically do not need postsecondary education for entry.

This landscape of new job seekers and many companies looking to fill open jobs will undoubtedly create many poor new hires for companies. The top two reasons for making bad hires, according to the 2012 findings from the researchers at the National Business Research Institute was that  43 percent of companies needed to fill the job quickly and 10 percent of respondents said the recession has made it hard to pay staff to go through applications looking for the best candidates.

For those employers who do make bad hiring decisions and chalk it up to the “cost of doing business” or the thought process that having any employee is better than having no employee at all, consider the following info from the NBRI research.

Of these employers who said they made a bad hiring decision, which was 66 percent of survey respondents, 37 percent said the bad hire negatively affected employee morale. Another 18 percent said the bad hire negatively impacted client relationships. And 10 percent said the bad hire caused a decrease in sales. Here are the ramifications that most employer cannot put a dollar impact figure to.

To measure the actual dollar impact, the researchers examined five main factors to help them estimate the cost of a bad hire:

  • Loss in productivity – the annual salary of the employee
  • Training costs – 25 percent of the annual salary of the employee
  • HR costs – calculated using the average HR generalist’s salary
  • Interviewing costs – calculated using the average HR generalist’s salary, and
  • Employment ads for a new hire – anywhere from $100 to $1,600.

When these factors are combined, companies take a huge hit to their wallets.

The lowest paying jobs — like fast food cook and farm worker — often earn a salary between $18,600 and $20,320. But a bad hire in one of these positions can cost a company an average of $25,000.

It’s a similar situation for the highest paying non-medical jobs. Sales managers and lawyers earn an average salary somewhere between $110,000 and $130,000. A bad hire in those positions can cost employers anywhere from $152,000 to $220,000.

It gets even worse for the highest paying medical jobs, which earn a salary between $191,000 and $233,000. The cost of a bad hire in one of these positions: nearly $300,000.

I am a big proponent of the following best hiring tips:

  • Hire slow, fire fast. A bad hire is the fault of the company, not the employee.
  • When possible, hire employees with the right attitude and aptitude, not necessarily industry experience.
  • Avoid the cult of personality syndrome of hiring the candidate you like the most. Have all second stage candidates meet with several people within your company
  • Have a measured and specific training program.
  • Remember, a probationary period is honeymoon period. If the employee is not’t heading in the proper direction or is creating problems in your culture early on — move them on.