The Cost of a Bad Hire, and How to Avoid It

For the Denver Business Journal — By Stephanie Klein

Of all the benefits to having a solid, proven hiring process at your business, the greatest is this: hiring the wrong person, which is often the result of a misguided hiring process, can cost your business thousands of dollars and have ramifications that echo far beyond that single bad hire.

It’s a scenario many business owners can relate to: you have a short amount of time to hire someone for a critical role in your company, so you post a basic a job description on a few job boards, review a bunch of resumes and hold a handful of interviews, deciding quickly on who you feel could fit the position well.

Six months later, it’s apparent that the decision was the wrong one and your new employee leaves or is fired. You may have known that they were wrong for the job, though, within a few weeks, but held out in the hopes things would change. The cost of such a mistake is often in the tens of thousands. 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.

What drives these costs so high? Hiring a new employee brings with it the cost of training and orientation, any testing that may be involved, termination costs like COBRA and unemployment, and not to mention the cost of repeating the process all over again. Unfortunately this doesn’t even begin to touch on the unintended consequences of a bad hire.

Seeing things go wrong probably affected your other employees, who may now be wondering if they should start looking for a new job as well. They may be questioning your decision making and judgment skills, especially if they felt the new employee was wrong for the job. How do you measure low morale as a result of this situation? What about the clients who interacted with that bad hire, what will they think and how will that affect your relationship with them? The truth is, a bad hire can have implications that extend in every direction within and beyond your business.

The first response when faced with this frustrating situation is to ask, how do I avoid this in the first place? The simple answer is, create a thorough, proven hiring process, and stick to it, or hire someone who can. What that process should be has been the topic of many a previous column, but in a nutshell, it starts with knowing exactly what you want. If the job description, skills needed and responsibilities for the position are cloudy, it’s impossible to hire the right person. It’s also crucial to look beyond those concrete necessities to less definable abilities, like leadership skills, communication skills, and an individual’s personal, cultural fit within the company. Finally, use all the resources you have to fully vet each potential candidate. That means following up with their references, talking to existing employees about candidates and the job itself, or enlisting the help of a professional hiring firm.

Say you follow a well-vetted and thorough process to hire your new employee but, against all odds, that person turns out to be the wrong fit. Perhaps they misrepresented themselves or their skill set, or maybe the cultural fit isn’t as good as you thought it would be. What do you do now? For many, the response is to see if things get better over time. Others may get caught up in the ego-related issues of admitting that their hiring decision was a bad one and try to rationalize the decision. Unfortunately, that’s often the wrong answer. Anyone who has hired an employee has had that 2 a.m., “What am I going to do?” gut check – an instinctive feeling that things simply are not right. Once you have that realization, the clock begins to tick. At that point, the best answer is to cut to the chase and make a change. The old adage of “hire slowly and fire quickly” may be a cliché but it’s true nonetheless.  Be honest with yourself; do what’s right to correct your mistake and avoid costing your business even more.

Stephanie Klein is President and CEO of Experience Factor, a Denver staffing and placement firm, and chair of the Denver Workforce Investment Board.  Contact her at 303-300-6976.