According to a survey by Monster.com of 639 small business owners in the U.S., it cost an average of $6,480 for small business owners to replace a “wrong hire” in 2015. That estimate is on the low end of the spectrum. The U.S. Department of Labor estimates it can cost on average one-third of a new hire’s annual salary to find a replacement. Others believe it’s even higher than that. According to a study by the Society for Human Resources Management (SHRM), it can cost up to five times a wrong hire’s annual salary, depending on the circumstances. The person’s position, how long that person was in that position, and the size of the company all contribute to this cost. According to SHRM, a “wrong hire” at a big company earning $80,000 per year (having been in that job over a year) could cost up to $400,000 to replace. And the “wrong hire” of a CEO in a national company can cost millions to replace.
The expense of a “wrong hire” comes right off the bottom line. That is money spent that adds no value to the business, except perhaps in shaping future hiring practices. A “wrong hire” might teach a manager what to avoid in the future; but often doesn’t even do that. Still, it would be nice if that lesson could be learned without paying such a steep price, especially since Harvard Business Review indicates that as much as 80% of employee turnover is due to bad hiring decisions. Perhaps, then, it would be helpful to know which types of people to avoid hiring and how best to recognize those flaws.
Why Does it Cost so Much to Replace a “Wrong Hire”?
First, let’s address the question that is often asked about replacing staff. Does it really cost that much to replace a wrong hire? It does, and here’s why. There are obvious and not-so-obvious expenses associated with replacing a “wrong hire”.
Costs to Recruit, Hire and Train the “Wrong” Hire and then their Replacement later
- Cost to advertise the position
- Time spent by HR and management to review resumes
- Time spent by HR and management to interview candidates
- Travel, hotel and meals for out-of-area candidates
- Employment testing
- Relocation costs, if any
- Training and orientation for each new hire
Costs to Terminate the “Wrong Hire”
- Potential litigation expenses if sued for wrongful dismissal
- Outplacement or career transition costs
- Severance or contractual salary buyout
Costs to the Business
- Impact to employee morale (hard to measure the cost)
- Customer dissatisfaction
- Lost sales or reduced productivity, depending on the position
- Increased work load on remaining employees picking up the slack
All of that is expensive and unpleasant. It takes focus away from what HR, management and the department should be doing. That is why it is so important to screen and hire carefully and do everything possible to find quality talent that fits the first time around. Yes, it will cost more to be thorough in identifying and vetting a candidate who is not only skilled and talented but is also a good fit for the organization with the intrinsic qualities desired in an employee. But it is well worth it. While the process of recruiting, vetting and hiring is complex and cumbersome, it helps to at least know the qualities to avoid when hiring a new employee.
1. Dodge an “Ignorant Igor”
When it comes to new hires, ignorance is not bliss. Here we’re not referring to bias or bigotry (although it should go without saying to avoid hiring anyone who is openly biased or bigoted). In this case, we’re talking about a person who lacks knowledge or comprehension; someone who is uninformed and needs to be educated. While it is true that every job has a learning curve and even highly experienced employees need training, it is important to avoid hiring employees that are generally not well informed about a job. This includes candidates whose skills may be rusty or obsolete. Instead, look for individuals who show effort to remain well informed and current within their occupation or are at least passionate about the industry. They tend to be better suited for their jobs and are generally more confident and proactive.
Action points: To avoid hiring an ignorant Igor, screen resumes carefully. Set and stick to whatever the strict minimum education and experience requirements are for that position. For entry level jobs, look at relevant education, personal interest and enthusiasm for the job. When possible, interview candidates who have additional or related training or certification. For example, hiring a person with Realtors license would makes sense for a position selling real estate investments even if the person has no experience.
2. Avoid a Lukewarm Larry
A general lack of interest or concern is even worse than an ignorant employee. A person who is indifferent or unresponsive just doesn’t care about doing a good job and lacks the drive or desire to get the job done. At least the ignorant employee can be made to comprehend, but a person who is qualified but doesn’t care about their work has a flaw that is usually unfixable.
An apathetic employee is just in it for the paycheck. A lukewarm Larry is extremely difficult to motivate, and will often seem inconvenienced in doing their job. He will never go above and beyond. Apathy murders motivation, kills quality, and causes substandard service. Worst of all, it’s a contagious characteristic that can spread to the entire staff faster than a virus.
Action Points: To avoid hiring a lukewarm Larry, consider the person’s employment history. Is there a lot of job-hopping? Did he jump from job-to-job without path or purpose? Was he ever promoted? Ask him why he applied for this particular job. Gauge his relative passion for the work, company, or industry. Ask him to explain a job, product, process or project he improved at a previous job. Ask him to talk about a time when he went above and beyond in his job to help a colleague, hit a deadline or improve a situation. The person who has never moved up or stepped up is likely not revved up.
3. Ditch a Dishonest Doris
It may seem obvious that managers should avoid hiring someone who is dishonest. Billionaire investment guru Warren Buffet – often referred to as the Oracle of Omaha for his ability to spot good investment opportunities – once said, “…In looking for people to hire, look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you… If you hire somebody without integrity, you really want them to be dumb and lazy.” A dishonest person generally only feels bad for the bad things they do after they get caught. Otherwise, they really don’t care who they’re getting the better of, be it their employer, co-workers, or customers. The problem is that a dishonest Doris doesn’t come right out and say she is dishonest. After all, she is not honest! So how is an employer to avoid hiring a Dishonest Doris in disguise?
Action Points: It is easier than one might think to spot a person’s lack of integrity. It starts with the resume. It is estimated that over 40% of applicants distort, embellish or flat out lie on their resumes and applications. This is where some old-fashioned research comes in handy. Check each finalist’s references and validate claims made by the candidate on the application, resume or during the interview. Minor distortions can be overlooked. But if a candidate flat out lies about something important – such as having a degree that they never earned or a job they never had — ditch the applicant. Another way to catch a dishonest Doris is to ask her about her most impressive claims. When asked for minor details about specific projects or programs, most individuals reveal lies by fumbling their answers.
4. Steer Clear of an Inconsistent Yvonne
No employee is more frustrating to manage than an Inconsistent Yvonne. This is the employee who performs brilliantly at times but well below par at other times. It’s especially frustrating coming from an employee who has the knowledge, skills and experience to do great work, but doesn’t always. This person might be late or absent often or take a lot of personal calls. This person might spend a lot of time texting, shopping online or playing games. Or it might be someone who simply socializes at work too much. Whatever the reasons, an inconsistent Yvonne’s productivity is erratic. She is undependable and cannot be trusted with deadlines. Clearly, this type of candidate is to be avoided. But how? How does one spot an Inconsistent Yvonne during the hiring process?
Action Points: This is tough. First, everyone has ebbs and flows in their work. Even the most dedicated employee will have days or times of the day where they are more productive and less productive. Second, past employers will generally not divulge if an employee had a problem with consistency.
One question to ask during the interview is whether the candidate is a morning person or night owl. Ask “When does your productivity peak and when’s it at its lowest?” This assumes every person has ebbs and flows in their work, and will encourage the candidate to be more honest about their own energy and drive. This is also when a trial period comes in handy. Hiring someone for a three-month trial period helps to see, first hand, how the person performs. Even when an employee knows there is a trial period, they often forget and their true work habits surface after the first month or two. If a new employee shows herself to be an inconsistent Yvonne, let her go.
5. Pass on a Lazy Lucy
True laziness is perhaps the most debilitating trait to have in an employee. Truly lazy employees don’t just find an easier way to do things (which could be good, but could also be detrimental), they’ll look for a way to not do anything at all. While they may be great at delegating tasks – which makes them sound like potentially good managers — lazy workers actually demotivate everyone around them. A lazy Lucy will miss deadlines. She will use up her vacation days early and take all of her “personal” and “sick” days. Lazy Lucy is typically the last person to arrive at work and the first to leave. Worst of all, she is the one who consistently does the least amount of work in the time between.
Action Points: The best way to avoid hiring a lazy Lucy is to lengthen the application process. Include a questionnaire towards the end with yes or no opinion questions. Leave a large space for each answer. Eliminate any applicants who put only YES or NO without an explanation.
Quote of the Week
“I noticed that the dynamic range between what an average person could accomplish and what the best person could accomplish was 50 or 100 to 1. Given that, you’re well advised to go after the cream of the cream. A small team of A+ players can run circles around a giant team of B and C players.” Steve Jobs
© 2016, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.