Advice particularly relevant for young companies

by Larry Finkelstein
President of Transition Management Associates

What is the cost of a “bad” hiring decision? Organizations lose more than money, time and effort by recruiting, hiring and training people who should never have been brought on board in the first place.

The Labor Department estimates it can cost on average one-third of a new hire’s annual salary to replace him or her and that those costs increase the higher up in the organization the turnover occurs.

According to a study by the Society for Human Resources Management (SHRM), it could cost up to five times a bad hire’s annual salary. SHRM also found that the higher the person’s position and the longer they remain in that position, the more it will cost to replace him or her.

Our clients have generally given us a figure of at least 50% of annual compensation for professional miss hires and, in certain circumstances, the cost has been stated to be in the millions (due to malpractice or fiscal incompetence).

If you are in a relatively small organization, or have hired for a very important/sensitive position, a bad hire (or bringing in the wrong partner), can jeopardize your organization’s existence.

In recruiting, you have the salary of the individuals actually sourcing new candidates, related recruiting expenses such as advertising, management using time to interview, and potential costs of transportation, housing and relocation.

Onboarding takes up valuable time, from multiple employees, providing new employees the information they will need to be effective in the organization. Months (or more) can be wasted if the person brought in is a bad match for the organization.

You must also deal with the disruption that the wrong employee can create costly mistakes, disruption to the team, other employees’ time in correcting mistakes, potential lost business due to inept behavior with customers, potential litigation (from clients and from discharged employees), reduced quality of service, stress on employees who have to cover for co-workers, damage to the organization’s image to outsiders and erosion of morale to employees, additional unemployment costs, COBRA, possible severance and career transition services, and then repeating the effort to bring in a replacement.

Anyone who has ever had to let someone go, or has been dismissed themselves, knows how uncomfortable/painful the process can be. Dealing with the anger, sadness, depression, possible health-related and security issues is something you want to keep to a minimum.

What do you need to avoid making a bad-hiring decision? =
Planning to make a good job match

1. A well-defined job.
Be clear about the key tasks that need to be accomplished, the results that will be measured and the kinds of behaviors you will be looking for. Often, organizations do not spend enough time in truly understanding what they need/want in a new hire. Beyond skills, what kind of person (behavioral attributes) will lead to success?

2. Plan to gather the following information:
Can the person do the job (competencies)?
Will the person do the job (motivation)?
Will they “fit” with your organization (mesh with values, style, personalities)?

3. Well-trained interviewers
Skilled communicators who understand the needs of the position and have prepared thoughtful, targeted questions.

4. Have a wide net to gather prospects including:
Networking, social media, free public resources, advertising and perhaps, external recruiters.

5. Use a reliable, validated assessment instrument to provide objective feedback. (Such as the Caliper Profile)

6. Check references

The direct and indirect expenses of a “bad hire” are too great to not carefully plan how to bring in the best talent.