“What can I say? I hired the wrong guy and he destroyed everything I’d spent 10 years working for.”
Those are the words by Steve Jobs, commenting on how he wrongfully recruit John Sculley as the CEO of Apple, which eventually caused Steve Jobs’ ouster from the company he started. Even one of the most accomplished entrepreneur of our times made hiring mistakes – and a costly one too. However, Jobs is by no means the only one to make a wrong hire. According to a study commissioned by Glassdoor, 95% of organizations admit to making at least one bad hire every year. These mistakes can be staggeringly expensive, in terms of monetary costs, as well as the hidden costs which do not show up on the organization’s financial report.
How Much Does a Bad Apple Costs?
Many companies do not have the numbers to define the cost of a bad hire and often underestimate the true cost of it. For example, Zappos CEO Tony Hsieh found his company was actually spending “well over $100 million” on bad hires. To prevent further pain, Zappos is now offering $2000 severance pay to new hires to leave should they decide if the company is not right for them.
That is not a surprising move, considering that Harvard Business Review finds that 80% of an organisation’s turnover is due to bad hires. And according to the US Department of Labour, the price of a bad hire is at least 30% of the employee’s salary for the year, a costly figure for small companies. In some cases, the costs can amount up to hundreds of thousands depending on the job level.
Why Are These Costs So High?
Not all damages are obvious and quantifiable. There are also some hard-to-quantify costs such as lower employee morale, productivity and customer dissatisfaction. Unsurprisingly, it is the ripple effect from these consequences that brings upon the most lethal damage.
The reason? One bad apple can spoil the bunch. When one of your employee is disengaged, it can infect other employees as well. As other employees try to pick up the work of the employee who was let go, they can get burned out making up for it, leading to the downward spiral of even the best employee’s motivation and engagement. And the worst part of it? The impact does not end right after the employee leave the organisation. A bad hire’s effect on the company culture extends beyond the employee’s time in the office. Poor performance can lower the benchmark for other employees and if no action is taken, it becomes embedded in the company culture.
From great interviewee to bad employee
Despite the staggering costs, companies still continue the practice of “hiring quickly and firing slowly.” A survey from CareerBuilder revealed the leading reasons why companies make bad hires. 43% of the organisations reported the need to fill in the position quickly, hence are pressured to fill the open position as soon as any candidate applies. The desperation can sometimes blind the hiring managers to overlook the red flags, as many might not realise that hiring a bad employee can be actually worse than leaving the position open.
Undoubtedly, there are other reasons organisations continue to hire rotten apple, as found in the same survey. They include:
- insufficient talent intelligence – 22%
- sourcing techniques need to be adjusted – 13%
- fewer recruiters needed to review applicants – 10%
- inadequate reference checks – 9%
- lack of strong employment brand – 8%
Avoid Costly Hiring Mistakes
It is not easy to identify bad hires, especially when interview and personality tests have been deemed inaccurate to predict future work performance. Momentum-Assessor’s pre-interview screening helps to screen candidates to make the best hiring decisions for your organisation.
Our approach, which is based on coping theory in the field of cognitive science screen candidates based on common sense and motivation. These two factors are crucial in predicting future work performance and to identify candidates who best fit your team and job. Simple yes or no indicators then help make quick and accurate hiring decisions. Our customised interview guide condense the results from our assessment, providing the right questions to probe and discuss. Not only does this save money and time – you are one step closer to building your champion team when you hire right every time.