- The U.S. Department of Labor says the cost of a bad hire can reach up to 30 percent of the employee’s first-year earnings.
- The Undercover Recruiter reports bad hires can cost $240,000 in expenses. Those are broken down into costs related to hiring, pay and retention.
- CareerBuilder says 74 percent of companies who made a poor hire lost an average of $14,900 per poor hire.
While much harder to quantify than direct monetary costs, opportunity costs can be substantial when they are added up. Opportunity costs represent the potential benefits a business misses out on when choosing one hire over another. The idea of opportunity costs is a major concept in economics.
Because they are unseen, opportunity costs can be easily overlooked if one is not careful. Understanding the potential missed opportunities foregone by choosing one hire over another allows for better decision-making.
While financial reports do not show opportunity costs, business owners often use the concept to make educated decisions when they have multiple options before them. Training and onboarding the bad hire for instance, is an example of opportunity costs. Not only are these sunk costs not recoverable they have to be weighed against the lost productivity that the right hire would have produced.
- Opportunity cost is the forgone benefit that would have been derived by an option not chosen.
- To properly evaluate opportunity costs, the costs and benefits of every option available must be considered and weighed against the others.
- Considering the value of opportunity costs can guide individuals and organizations to more profitable decision-making.
There are other forms of loss that can be associated with a bad hiring decision according to People Matters. For instance: motivation. A bad hire can have a negative impact on co-workers and the team as a whole. If the bad hire is in a leadership position, the impact can be much worse. Direct reports will start to resent the leader. Eventually, those employees who have proven to be some of the best workers/high performers will start to disengage from the team and the organization. Self-motivation often relies on environmental factors. If the environment is negative, it can be very difficult to be motivated at work.
Motivation can directly impact the productivity of an employee or team. A bad hire, in most cases, can make it difficult for a team to meet their goals. That’s because a co-worker or team will be hesitant to work with the bad hire and vice versa. The bad hire simply may not want to work with the other team members and thus will do whatever is needed to get out of the work.
It’s difficult to weigh which loss yields a higher negative impact on the company. That said, reputation is probably the more difficult one to overcome. In the internet age, job seekers are accustomed to looking at websites that offer employee-led company ratings and/or anonymous feedback sites. A bad hire can sow discontent from these websites. Candidates researching particular companies where this has taken place may move away from the organization. And it’s not just job seekers. Current employees often review these websites as well. Those employees could begin to develop negative feelings about the organization and may begin to distance themselves and, ultimately, look for a new company for which to work.
Rebuilding a company reputation under these circumstances can be an uphill battle.
No one wants a bad hire, especially when offering someone a job is such a momentous occasion for the organization and the employee. The way forward is really about where the focus lies when hiring anyone for any position. HR or hiring managers need to focus less on college degrees and experience and focus more on ‘fit’. Does the candidate have the qualities the organization is looking for and does he or she embody the company culture and values? When hiring from that perspective, HR will see fewer poor hires and more brilliant ones.