New hires are a company’s biggest investment with hopes of exponential business growth and profits. A wrong or bad hire can damage a company in all spheres.
Such hires create a ripple effect of low morale, slower work momentum, and workplace frictions that spread across teams. The losses incurred will have already compounded in several ways when teams and managers start detecting such red flags.
Identifying bad hires is not as challenging, but gauging the full spectrum of damage they cause is. Furthermore, it is critical to prevent hiring them in the first place.
Explore the hidden costs that companies incur from recruiting bad hires and how companies can prevent them with insight-led hiring decisions.
What We Usually Think of as the Cost of a Bad Hire
Bad hires are mostly classified based on the visible losses in business that the team faces during their tenure. Such losses in terms of finances and effort can be recognized in the following areas.
1. Salary and Recruiting Fees
Salary paid during the phase of onboarding and adapting to a job role, till the time the hire makes significant business contributions, can be considered a loss if they do not meet expectations.
Consider a mid-level employee earning $60,000 annually. Even a six-month short tenure represents a $30,000 investment with hardly any returns. Adding to this are additional recruitment costs that can be anywhere between 15% to 25% or higher. This calculation contributes to an additional loss of $9,000 to $15,000.
This calculation represents the bare minimum of what a bad hire costs, the baseline that every company can calculate on a spreadsheet.
2. Training and Onboarding Investments
The onboarding phase is mandatory in every company, irrespective of size, to ensure that employees are well familiar with the company and their job role. Every new employee requires time and resources to get up to speed.
Onboarding programs, training materials, adding access and employee records to the company HRIS, software licenses, equipment, and the countless hours that managers, teams, and HR professionals spend helping someone are often huge investments involving time and effort.
Onboarding requires more resources, training, and evaluation for technical roles or senior leadership. Certifications in proprietary firmware or software, extensive mentorship from senior team members, and taking up specialized e-learning courses can incur additional costs that companies must bear. When someone doesn’t work out, all of that investment evaporates, and the cycle repeats.
3. Replacement Costs
Once you’ve recognized a hiring mistake, you face all the costs again. Another round of recruiting fees, more interview time, and another onboarding process.
Studies show that replacing a bad hire costs at least twice the package of such an employee, and this value increases with higher levels and specialized job roles.
These replacement costs also include losses that teams or units incur due to extended periods of a position remaining vacant. This loss comprises reduced productivity, an increase in effort by the remaining team members when they shoulder additional responsibilities.
The Costs We Don’t Always See
Bad hires often dent the core working principles of the team where they are part of, making it difficult for their team members, managers, and leaders to ensure work runs smoothly, hook or crook. These actions are often invisible, but the impact is often huge both for the bad hires and their business dependencies.
1. Lost Productivity
Bad hires don’t just fail to produce at expected levels. For reasons known or unknown, they show signs of neutral or negative engagement at the workplace. Bad workplace decisions, inability to work efficiently, or not being able to manage time affect the functioning of their work team.
The opportunity cost is staggering for the team, group, and the company. Managing underperformers or disengaged reportees often drains teams and leaders from pursuing professional opportunities to help their team’s growth and development. Time spent on motivating or actively engaging a bad hire is ideally a waste of time for HR professionals.
2. Team Morale and Engagement
High performers of a team become frustrated when they’re picking up slack for someone who can’t keep pace. Team dynamics change when members see unfair workload distribution or have an underperformer make things worse for them at the workplace.
This frustration caused by bad hires can slowly lower engagement levels in the team, reduce collaborations, and cause unwanted turnover of previously satisfied employees. These turnovers increase when the company keeps repeating its hiring mistakes, making the company unsafe for stellar performers.
3. Leadership Distraction
Managers dealing with a bad hire spend enormous amounts of time on performance management, difficult conversations, documentation, and often coordination with HR. This time comes directly out of the time they should be spending on coaching strong performers, developing strategy, or building relationships with key stakeholders.
Group managers and C-suite leaders are often scrutinized for bad performances, low engagement scores, and poor retention levels, which would ideally never exist if certain hiring mistakes were avoided. This distraction spreads through all levels in the organization, affecting decision-making, strategic planning, and aligning with company goals.
4. Reputation Inside and Outside
Repeated bad hires damage a company’s credibility in safeguarding employee interests and overall wellness within the company. Teams are often skeptical about accepting new hires and training them fully, only to see them underperform or not meet expectations, affecting the experience of some good hires too.
Bad hiring and consequent reflections on retention and turnover rates, and business profits create a bad employer reputation for the company. Frequent hiring drives and a fast-track hiring process with no standardised processes often exhibit poor hiring practices of a company. As a consequence, vendors, customers, and business partners often think twice about partnering with such companies, fearing a compromise on quality and time.
What Really Causes Bad Hires
1. Gut-Based Decisions Over Structured Insight
Even today, there are a lot of hiring managers who select candidates based on their gut instincts, unconscious biases based on candidate backgrounds, and past interview experiences, without considering actual requirements and merit-based eligibility.
While these methods have fetched a few good hires, unstructured interviews with no concrete evaluation methods are often the leading cause of bad hires. Such intuitions and biases are often based on personal experiences that are not backed by proper evidence and information. Looking for candidates with superficial traits of past successful hires is irrelevant to their job performance.
2. Misaligned Expectations
Bad hires often result from a fundamental misalignment between what the job role needs and what the candidate offers or expects. Sometimes the job description doesn’t reflect the actual role. Different stakeholders, such as team leaders, hiring managers, and team members, have competing visions of what the position requires.
Candidates also misunderstand or fail to research what they’re signing up for. Accepting positions based on incomplete or misleading information about responsibilities, being unaware of the company culture, or growth opportunities often makes potential candidates lose interest in working in the company within the first few weeks.
3. Poor Evaluation Criteria
Many organizations evaluate candidates on factors that are necessary, but do not accurately determine the fit for a given job role. They prioritize prestigious educational backgrounds, polished interview performance, or generic “culture fit” over the specific competencies and team-blending characteristics that are required for working in a team.
Unclear evaluation criteria and selection strategies make hiring subjective and inconsistent. Different interviewers assess different qualities, and also justify their reasons for selecting candidates, making it difficult to have concrete reasons for selections.
4. Ignoring People Patterns
Organizations often fail to recognize patterns that are the prime cause of their bad hires. They don’t track red flags in their evaluation process, which sources produce the best candidates, or what characteristics must be evaluated for fair opportunities.
Without recognizing such past patterns, companies repeat the same hiring mistakes but expect different results. They consistently hire poor candidates based on outdated expertise or overlook signals that indicate a good hire for a given job role.
How to Prevent Bad Hires
1. Define Success First
Writing your job descriptions is often disregarded as a menial task. But adding the correct details makes a huge difference in fetching you the best candidates who are most suitable for the job role.
Be clear with your expectations on must-required skills, what they will learn when on the job, the company’s work culture, adaptations required for the job role, and other details.
Involve the team leaders, members, and relevant technical experts to be part of the evaluation process for more effectiveness.
The presence of team members and leaders helps create precise expectations from the job role, enabling only the right candidates to get selected.
2. Use Structured Evaluation
Replace impromptu interview sessions with standard selection and evaluation formats helmed by technical experts. Use the same set of questions and evaluation dimensions for every candidate in the hiring process.
Additionally, include assessment of past work experience, work samples, skills assessments, and behavioral characteristics that help candidates qualify better for a job role. Such an evaluation provides order and concrete reasons for selecting candidates without any bias.
3. Look Beyond Skill to Fit
Technical skills are often considered necessary and sufficient while selecting candidates, as most bad hires possess or learn from their peers to ace interviews.
Overlooking behavioral characteristics, like the ability to handle challenges, not abiding by specific working dynamics, or team values, can potentially mark the beginning of doom.
Behavioral assessments, real-life scenario evaluations, and similar psychological tests give data on how engaged a candidate will be upon joining the company. Such comprehensive assessments and feedback would mean companies can put less effort later on in trying to motivate such candidates.
4. Use Insight and Not Just Data
Data without the right conclusions, analysis, and insights leads to poor hiring decisions. Domain experts and recruitment consultants help companies analyze their past hiring data and derive patterns that companies must avoid or change to hire better.
Today, several AI-based recruitment software and platforms help companies with accurate data-driven insights to analyze hiring decisions easily.
Analysis and consequent insights from past hiring data can supplement hiring decisions made by the selection panel, eliminating the need for instinct-based decisions with evidence-backed information.
Closing Thoughts
Bad hires cost more than just finances, including a waste or loss in productivity, effort, and time. It is not that complicated to prevent bad hires. Making smarter and more focused strategies and data-driven decisions is key to avoiding bad hires.
A clear definition of hiring criteria, evaluation procedures, expected technical and behavioral traits, while avoiding patterns exhibited by bad hires in the past, is the success formula for hiring right.