Jeff Lipschultz’s Blog

I Think, Therefore I Blog

Why Use a Recruiter: Part I – The Cost of a Bad Hire

Whether internal or external, recruiters bring value to a difficult process of finding the best talent for an open position in a company.  Granted, if a role has countless, very qualified candidates at the door, random luck will suffice.  However, for many roles, careful screening of potential candidates is required to ensure the best fit for the job is hired. Taking shortcuts can lead to settling for the best of what may be a “B-list” of candidates.  Sometimes, employers think the candidates who apply for their open position on a job board are the best possible candidates.  A good recruiter can prove this wrong time and time again.  Sometimes the best candidates are not even looking for a change (until it is presented to them).

One of the obvious problems associated with hiring a “less-than-optimal” employee is the risk of an eventual mismatch and having to let go of the employee in the first 90 to 180 days (by the way, good recruiters replace their hired candidates if this is determined early on).  There are many costs related to a bad hiring decision–many companies have unique situations that contribute even more to the wasted time and money.  Zappos CEO Tony Hsieh once estimated bad hires had cost the company “well over $100 million.” In general, the U.S. Department of Labor estimates the price of a bad hire to be at least 30% of the employee’s annual salary. 

The more influential the role, the bigger the cost might be.  What about hiring a new Sales and Marketing Director?  During the hiring process, the company is losing potential revenue.  Once hired, the new Director must get up to speed, learn the products and approach, start down the road of getting productivity within the team, and then finally start to concretely contribute to the bottom line (hopefully).  If things don’t work out, and the company has to start all over again, imagine how much money has been lost in unrealized revenue.  This doesn’t even include the other employees’ time in training the new-hire, setting up benefits and payroll, and other tangible activities.

Taking this a step further, how does firing employees impact the rest of the team.  Employees start to wonder if they are next, or if they’ll ever have a boss or peer that will be around longer than 90 days.  This assumes the “bad apple” has not rubbed off on others, perhaps telling stories about how messed up the company is compared to other places they have worked.  This can lead to a downward spiral, snowball effect wrapped into one, along with some serious morale issues.  This is just the internal effects.  A bad hire can also sour relationships between the company and its customers (potentially leading to more lost revenue, legal issues, or even worse, a negatively impacted reputation in the marketplace).

Good companies tend to give poor performers a chance to rebound.  After all, maybe some of the problem is due to the company’s training practices or just bad timing.  Performance reviews and coaching requires time and energy beyond the normal training.  Time that could be spent working on the regular day-to-day issues.  Worst case, these leaders have to deal with micromanaging and potentially, disciplinary actions.  If this pattern of bad hiring decisions continues, the decision-maker’s reputation may quickly become tarnished, too.

Other non-recoverable, tangible costs include relocation allowances, referral bonuses, unemployment insurance withholding, and sign-on bonuses.  A huge, non-tangible cost includes a newer concept, “Employer Branding.”  Actually, the idea is not new–the term is.  People have checked into company’s reputations long before there was Glass Door.  Simply by asking their network, potential candidates can see if an employer is worth the trouble before even applying for a position (or saying yes to a recruiter’s request to interview).  Once a company’s reputation is blemished in this area, it can be very hard to attract good talent for a long time.  Then the likelihood of hiring B-list candidates becomes even higher, and the whole cycle starts again.  A little scary, actually.  Rate of turnover or average tenure are among the more popular questions recruiters are asked.  People want a good salary, but they want stability even more (along with opportunity for growth). 

The cost of a bad hire has so many aspects, it is hard to get an accurate measure of its impact.  And again, it does depend on the role and span of responsibility.  However, much of what’s been discussed effect all companies when they do not hire the best candidate.  The more the process is focused on quality, the more likely the best will be hired.  Often times, a third-party can be the difference.  Someone who will put in the time to present a short list of great candidates and guard against hiring those who only claim to be a good fit.  A good recruiter also can take some of the subjectivity out of the process–their reputation is on the line every time they present a candidate.  They don’t want to fail.  A really good recruiter can also help with the interviewing and selection process the company is using.  This focus on quality can help a company avoid the cost of a bad hire, but also allow their hiring decisions to pay dividends for a long time.

Advertisements

June 13, 2018 - Posted by | Candidate Selection, General Musings, Management 101, Working with Recruiters

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

%d bloggers like this: