What Are The Total Costs Of A Bad Hire?

Business guru Peter Drucker has said, “Of all the decisions an executive makes, none are as important as the decision about people because they ultimately determine the performance capacity of the organization.” Warren Bennis, professor of business at the University of Southern California and author of Managing the Dream, calls the search for top talent “the most significant problem facing all organizations.”

According to a study by the Corporate Leadership Council, hiring the wrong executive can cost an organization as much as three times their annual salary. The Gallup Organization has noted that the cost of poor hiring decisions may even be much higher than previously estimated. Some researchers have calculated the cost of a bad hire can be as high as twenty four times the position’s base salary.

Presidents, CEOs, Boards of Directors, and Hiring Managers should never underestimate the ramifications of a bad hire. The fallout can affect an entire organization, doing far more damage than leaving the position empty would have.

While reasonable experts may disagree about specific salary-to-cost ratios, the fact remains that the cost of new executive failure is much higher than merely search costs and salary. Those are just two of the direct costs.

Indirect costs typically add up to much more.

Some of the direct and indirect costs noted in various studies we reviewed include:

• wasted salary, benefits, and severance
• lost recruitment fees and training costs
• lower personal productivity among dissatisfied employees
• disruptions caused by dissatisfied employees
• higher turnover rates among productive employees
• damages to reputation and market share
• lost management time
• increased stress and anxiety from people problems

The person hurt most just might be the executive who was set up for failure. This person accepted a position based generally on a vague job description, and then found reality did not match up to their or the hiring manager’s perceptions.

Having a structured, formal, and sophisticated hiring process, with well trained people in the process will ensure that these bad hires are significantly reduced and often eliminated.

Calculate the total cost of a bad hire using our “Cost Of Bad Hire” worksheet. CLICK HERE.

Related posts:

1. Cost Per Hire Versus Value Per Hire Which Is Most Important