This is the second piece in a multi-part series on smart hiring. This article will explore just how expensive bad hires can be for a business, plus two things you can do when recruiting to avoid making such mistakes.
It’s expensive to hire the wrong person for a job. This is the other side of the coin when it comes to smart hiring practices: Doing it the right way adds tremendous value to your company, and doing it the wrong way subtracts tremendous value.
The Cost of Bad Hires
Let’s try to put numbers to this. First, you have the expenses associated with listing a job, screening and interviewing candidates, and onboarding someone. Fast Company’s Lydia Dishman, citing research from Glassdoor and consultancy the Brandon Hall Group, estimates this is about $750 for entry-level hires to nearly $3,800 for executive-level hires.
But Dishman points out that these figures don’t take into account harder-to-quantify consequences such as lost productivity, poor team performance and effects on company culture. Here, we can really only estimate the costs per company and per hire:
- In the first piece in this series, we mentioned that Zappos offers new hires $2,000 to leave after their initial training if they think they’re bad fits. So, Zappos must calculate the cost of their bad hires as more than $2,000.
- Executives Online calculates that a bad executive hire costs 3.5 times the person’s annual salary, assuming the person stays in the role for the full year.
- Maynard Webb, Chairman of the Board at Yahoo!, cites the book Who by Geoff Smart and Randy Street, who say the average hiring mistake “costs 15 times an employee’s base salary in hard costs and productivity loss.”
You should probably take that 15x figure with a grain of salt, especially for smaller companies, but it’s a useful way to illustrate what kind of a money pit bad hiring can be. To understand why, you need to understand how costly employee disengagement can be.
What Makes Someone a Bad Hire?
Stanford researcher Emma Seppälä and University of Michigan researcher Kim Cameron write at HBR that positive work cultures tend to be the most productive, and as we discussed last time, the best hires are good fits for your company culture. Therefore, bad hires tend to be bad fits culturally, and they can disengage very quickly.
“And disengagement is costly,” Seppälä and Cameron say. “In studies by the Queens School of Business and by the Gallup Organization, disengaged workers had 37% higher absenteeism, 49% more accidents, and 60% more errors and defects. In organizations with low employee engagement scores, they experienced 18% lower productivity, 16% lower profitability, 37% lower job growth, and 65% lower share price over time.”
When productivity dips, many organizations try to fix the problem with Band-Aids, so to speak: Employee perks, work-from-home policies, gym memberships. These are all nice things to have, but they don’t fix the really fundamental issue. “A Gallup poll showed that, even when workplaces offered benefits such as flextime and work-from-home opportunities, engagement predicted well-being above and beyond anything else,” the researchers say. “Employees prefer workplace wellbeing to material benefits. Well-being comes from one place, and one place only — a positive culture.”
This is where so many companies go wrong. By failing to build a strong culture, communicate that culture clearly and hire for cultural fit, they’re perpetually stuck bringing on employees who cannibalize more value than they create.
If your company already has a defined culture, though, you’re in luck. There are two pretty easy-to-implement stop gaps in the recruiting process that will screen out potential bad hires. (And if you don’t, go back and read our post on core values.)
Measure a Candidate’s Cultural Fit Objectively
Many companies large and small pay careful attention to their cultures, but they sometimes fail to grasp what, exactly, it means to hire for culture. “Cultural fit still remains quite ill-defined as an assessment criterion,” HR veteran Kazim Ladimeji writes at Recruiter. “Many employers simply define cultural fit in an off-the-cuff, I-know-it-when-I-see-it manner.”
Ladimeji points to a couple of studies — one from UK personnel assessment company Cubiks and one from the American Sociological Association — that found less than a third of organizations actually used any measurable dimensions to determine cultural fit. But, in reading the ASA study, “it became clear that cultural fit was a key factor in determining whether a person would be hired. What also became clear was that cultural fit was not related to organizational values. Rather, managers were hiring people based on whether or not they would enjoy socializing with them.”
Scrubbing that go-with-your-gut attitude toward hiring requires intentional effort on two fronts.
First, you need to unambiguously communicate what your company’s culture is upfront, before you even begin screening candidates.
“When a company is completely honest about their values, mission and vision, they are unintentionally making their application pool smaller because not every person is attracted to the same kind of work environment,” Mark Agostinelli at staffing agency The Davis Companies writes. “This is advantageous in finding and retaining engaged and excited employees who will thrive in their working culture.”
Then, you need to be measured in what information you take away from candidates during the interview stage. Katie Bouton, founder and president of Koya Leadership Partners, has a couple of helpful tips in a post at HBR:
- Ask candidates directly about what cultures they thrive in. Ask what best practices they bring from former employers, and what time they’ve felt they were in positions where they were bad cultural fits. “You can assess the candidates’ work ethic and style by honing in on the following: whether they succeed in a virtual environment or with everyone in the same space; if they’re more comfortable with a hierarchical organization or can they thrive with a flat structure; and if they tend to collaborate across teams or operate in a more siloed approach,” Bouton writes.
- Bring the candidate in your company’s world. Give the candidate a tour, introduce the candidate to members of the team, or go for a group lunch. You’ll be able to gauge the person’s level of comfort pretty quickly, and involving other colleagues will open up opportunities for outside feedback.
And if you are approaching the hiring process proactively, that means you are not necessarily looking to fill a vacancy ASAP. Use that flexibility to put together a roster of potential hires, and, as the team at Huxley Banking & Financial Services recommends, hire those candidates for one-off projects before committing to a full-time role.
Verify a Candidate’s Past Performance
It’s easy to yadda yadda over reference checks when a candidate aces interviews and gets nods from would-be coworkers, but scrutiny is most needed during the post-interview phase. This might be your last chance to uncover an issue before you start training and paying the candidate.
“Past performance is the best predictor of future performance,” writes Suzanne Kelly, founder of HR consultancy Acquisition Intelligence. “Therefore, this is the time where the investment of due diligence will be the best preventative measure in scrutinizing and validating hiring decisions.”
Perhaps the most important thing you can do at this stage is to check all of the candidate’s references to learn more about the candidate’s drive, heart and character. “The people that have worked with them can give you the clearest picture of these qualities, if you ask the right questions,” JetBlue Airways Chairman Joel Peterson says.
And there is a science to this.
Claudio Fernández-Aráoz, a senior adviser at executive search firm Egon Zehnder, has a bookmark-worthy piece at HBR on how he consistently places candidates whom companies never have to fire:
- Have the candidate put together a long list of references. You can narrow down the list yourself. Says Fernández-Aráoz: “Former bosses are great at assessing strategic orientation and achievement drive; peers can help to measure influence; subordinates are often the best judges of leadership.”
- Ask each reference specific questions about the candidate. Do this over the phone, he recommends, so you can hear any emotion or hesitation, and be very clear about what the role you’re hiring for is, and whether the reference has seen the candidate perform well in similar situations before.
- Ask each reference about the candidate’s social and emotional intelligence. Ask about the candidate’s self-awareness, her ability to maintain self-control, her motivations, and her level of empathy.
- Describe your company’s culture to the reference, and ask whether the candidate’s own values align with that description. “In addition to the essential acid test of integrity, you should determine whether the candidate’s views on things like time orientation, a farming versus hunting sales approach, and the balance between collaboration and competition match yours and those of future colleagues and teammates,” Fernández-Aráoz says.
- Ask each reference whether the candidate continues to grow and learn. Curiosity, insight, engagement, and determination: Fernández-Aráoz calls these the “hallmarks of potential.”
images by:
Oscar Keys, Startup Stock Photos, Unsplash