Every time a new employee is hired the employer (and new employee) is taking a calculated risk that the new hire will be good for both parties.  The hiring is the culmination of a good amount of effort by the hiring manager to fulfill a staffing need.  Perhaps a job advertisement was placed in the local media to attract external candidates and a posting on the company website and intranet was made to attract internal candidates.  The hiring manager may have also reached out to associates to encourage referrals to the position.

Candidates submit their resumes, ones that appear qualified are interviewed by the human resources staff and hiring manager, references and background checks are conducted (maybe), and she decides that candidate X is the best of the bunch.  Feeling totally satisfied that she made the right decision she offers the job to candidate X, who accepts, a salary and start date is agreed to, and candidate X now becomes the new employee.

Signs Of A Mismatch

As the new employee gets familiar with his responsibilities it starts to become clear to the hiring manager that certain things just don’t seem right – late arrivals, early departures, complaints from co-workers – and customers.  Efforts are made to train, re-train, and restructure the work to leverage the new employee’s stated strengths.  To no avail, the hiring manager realizes she made a mis-hire.  He just doesn’t fit. Three months into the new employee’s tenure the hiring manager is seeing measurable evidence of the mis-hire: loss of sales and customers.  The position was vacant for three months and it took another three months to find the “right” candidate – and another three months to determine it was a mismatch.

Should You Start Over?

To the hiring manager this is usually a tough question but the answer should be yes.  After all, that usually means letting the employee go, starting the process all over again, and finding others (including the hiring manager) to complete the tasks of the now former employee.  Let’s review the investment in a hiring process by looking at the back end first.

Can You Afford A Mis-Hire?

It’s often difficult to quantify the costs of a mis-hire, but don’t worry; according to well established staffing research by Brad Smart and others, the data works out like this:

  • 75% of average hires turn out to be a disappointment,
  • 50% of hires end up being a mis-hire, and
  • The cost of a mis-hire can be:
    • 4 X’s the annual salary for supervisors,
    • 6 X’s the annual salary for sales representatives,
    • 8 X’s the annual salary for mid-level managers, and
    • 15 X’s the annual salary for vice presidents.

How To Calculate Hiring (and Mis-Hiring) Costs

It’s helpful to review the direct and indirect costs involved in a hiring process in order to understand your upfront investment.  First, look at human resources interviewing time and administrative costs to review all candidates; costs for outside testing, record checking, and physical exams; travel costs for candidates and others involved in the process; the time and expenses of all candidates involved; and, as applicable, any relocation costs.  Add to these costs the employee’s compensation.

Now that you understand the upfront investment, let’s look at the costs that can occur with a mis-hire.  Start with any severance, leave, or unemployment pay, perhaps legal fees, maybe an outplacement fee, and administrative costs involved in securing the separation. Now, add to that the cost of a lost customer, the impact of lower productivity, lower morale, or other factors resulting from the mis-hire.  And, let’s not forget the amount of time spent by the hiring manager and others documenting the employee’s weak points, and providing extra training.  Add it up.  Whew!  It can be substantial.

If 75% of new hires are disappointments, then we know that 25% of new hires are top performers.  So let me ask you:

  • Are you hiring “A” players?
  • Are you finding qualified talent – top performers?
  • Are you hiring for that person-future fit?
  • If you are not bringing on board top performers, what is it costing your company by not hiring those “A” players – the top 25%? (Hint: “A” players have proven to produce up to 24 times that of “B” players).

What Executive Search Firms Do

As you think about your answers to these questions consider ways to improve the results of your hiring process.  Executive and professional search firms know how important it is to find those “A” players and make sure their clients interview and select those “A” players.  As you consider your next hiring process, how important will it be for you to use a process that can increase your ability to hire only “A” players?  It can be done.