The real cost of a bad hire
Aidan Cramer, co-founder and CEO of JobLab
It won’t surprise you to learn that a bad hire can be expensive. Traditional recruitment agencies can take up to 30% of the final salary of any incoming employee. If that employee is paid the national average, that’s more than £5,000, and it climbs quickly if the person in question is taking a senior role.
But even this fails to tell the whole story. A report from the Recruitment & Employment Confederation (REC) found that although more than a third of companies believe hiring mistakes cost their business nothing, a poor hire at mid-manager level with a salary of £42,000 can cost a business more than £132,000 due to the accumulation of costs relating to training, lost productivity and more.
What’s talked about far less is the cost of a bad hire in non-monetary terms, and this is especially relevant in small teams with flat hierarchies, such as those found in the start-up space. Bringing someone into your company who isn’t the right fit — due to their temperament, attitude to the job or skill set, for example — can have a devastating effect on the day-to-day functioning of the business.
The ‘wrong’ people sap the collective morale of the entire team, and naturally this has an impact on their productivity: as WIRED has reported, happy people are about 12% more productive.
The logical end to falling morale is turnover. The threshold of unhappiness at work will vary from person to person, but everyone has a critical point at which they feel they have no choice but to leave. Successive departures begin to give off the impression that a business is poorly run or — much worse — a sinking ship, from which other employees may suddenly want to flee. It’s one of the most remarked-upon qualities of working millennials that they ‘job-hop’, or abandon companies which fail to fulfil certain professional needs, from money to purpose. You can rest assured that young people today will not feel a sudden rush of loyalty if their colleagues (and friends) start to get itchy feet.
Spread too thin
And then there’s the damage to the functioning of a business which, if it’s a start-up or a small company, relies upon the ability of its team members to work autonomously and responsibly, and to take care reliably of whatever tasks it is their role to perform. The ‘borderlessness’ of start-ups can mean that there will be someone who can take on the responsibilities of a bad hire, but this is hardly a long- or even medium-term solution: the quality of that someone’s own work will naturally diminish if she or he is spread too thin, and their morale will suffer, too.
Those responsible for hiring — often the founder herself in a start-up — will have to take themselves away from valuable activities to find a replacement for the bad hire. Soon you can find that there isn’t enough labour to go around.
It’s worth remembering that a bad hire can simply be the wrong fit even if they have the necessary skills for the job. An incoming employee may fail to assimilate into the company culture or have an approach to work that jars with those of everyone else.
The traditional recruitment model doesn’t help matters at all by relying heavily on a tired system of paper CVs and cover letters which benefits the privileged and contributes to the UK’s ultra-low productivity, by directing people to jobs for which they’re poorly suited. It’s also painfully slow, which exacerbates the problem of urgency that comes about when a company realises it has made a bad hire and tries to rectify the wrong.
Anyone who has braved the world of traditional recruitment will have experienced the frustration of having infrequent, impersonal communication or being put forward for the wrong jobs.
Hiring mistakes cost UK businesses billions each year, and recruitment fraud continues to be a problem. Both the candidates, who are denied meaningful work, and businesses, who are denied the people they need, lose out. In times of economic uncertainty, it’s especially important that businesses can find the people they need quickly and in such a way that the chance of making a mistake is dramatically reduced. If they fail to do that, the impact can be devastating.
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