What is the Cost of Making a Bad Hire?

06.15.17Baylee Olsen

Just how costly is a bad hire?

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.

There are many variables factored into the cost of making a bad hire, making it difficult to pinpoint an exact number.

Here are four major costs and factors involved:

  1. Turnover Costs: First, let’s get some of the most obvious and quantifiable costs out of the way; recruitment, interviewing, relocation, training, bonuses, and severance costs. Add these costs together alone and you’ve likely already got a fairly large number in front of you. YIKES! Unfortunately, this is only the beginning…
  2. Customer Interaction: Bad hires often lack the motivation to do their job well or generate excellent customer service. A customer may have a single negative interaction with your bad hire that causes them to walk away forever! Eventually, as this bad hire allows these destructive interactions to happens time and time again, your entire brand, reputation, and customer base will suffer. So, what do we get when we add up the lost opportunity costs, the cost of concessions made inattempt to win back dissatisfied customers, the cost of finding new customers, and the cost to repair your reputation? Another very large number, along with another very large YIKES!
  3. Team Morale: Coworkers do not appreciate having to pick up the slack, correct mistakes, or put up with the annoying work habits of a bad hire. Good employees will resent having to put up with the nonsense, which will cause morale to suffer. The overall standards of work will also drop to the lowest level, and eventually, your good employees will quit. So again, this bad hire ultimately leaves us with even more turnover costs, less overall workforce productivity and a disgruntled team. Ok, now we are really seeing the costs start to grow!
  4. Manager’s Time & Inspiration: Finally, the repetitive training, coaching, disciplinary processes or even just the fielding of complaints about a bad employee can eat up a great deal of a manager’s time.  Not only is that manager’s time lost to the bad hire, but that manager may no longer have adequate time to develop the good employees. Additionally, even if a group of bad hires ends up working under a great manager, that manager will stand no chance for success. Eventually, the once stellar but now burnout manager will likely seek out other opportunities. This ultimately leaves you not only without a leader, but leaves you with your cancerous group of bad hires. With the loss of a manager and with a dissatisfactory team, you can see how all the aforementioned costs now start to grow exponentially.

Desperation can kick in when you are left short-handed, resulting in hasty hiring decisions. It is admittedly difficult to find the time to recruit, nevertheless find that highly qualified candidate, when we are so busy keeping everything else afloat. But after reviewing the costs and time wasted with making a bad hire, we must remind ourselves that it really is worth the wait for the right person!

Need help finding that person? SDHRC’s expert recruiters are always here and ready to take the recruiting burden off your shoulders so you can get back to everything else on your list.Click here for more information about how we can help get the right person today!