Right Management Reports “Hiring Blunders Drain the Bottom Line”

Our colleagues at Right Management recently did a study of 444 companies, which revealed that replacing a bad hire can cost as much as five times the employee’s annual salary in recruitment, training, severance and lost productivity.  42% of the firms studied said a hiring blunder cost them twice the employee’s annual salary; while 26% said it cost them 3 times annual salary. 11% said it cost 5 times annual salary to correct the blunder. Only 15% reported that a bad hiring decision cost them as little as one times annual salary.

Typically, the higher the position, the more costly the hiring or succession mistake. “A bad senior level hire or promotion can severely damage a company’s external brand, affecting customer trust and loyalty, and resulting in a lost commercial opportunity,” said Mary Marcus of Right Management. Similarly, erosion of shareholder and investor confidence in leadership can also contribute to a decline in stock values.

Bad hires screw up the financial picture all the way down the line.  54% of study participants identified lost customers or market share as a primary result of a bad hire. 51% cited higher training costs, 44% higher recruitment costs and 40% higher severance costs.  Other outcomes of poor hiring decisions are non-monetary but cost organizations nevertheless. Examples are lower employee morale, identified by 68%, and decreased employee productivity, identified by 66%.

“Due to the rising cost of, and negative organizational impact from bad hiring and promotion decisions, more workplaces are turning to formal assessment processes,” added Marcus. “Formal assessment methods provide a broader picture of candidates under consideration, more consistency in management development, and people who are the best fit for the challenges of today and tomorrow."

The field of HR Metrics now gives us the ability to track, measure and monetize our activities and results - potentially transforming HR from a “soft” staff function to a full business partner with line-of-business leaders.

The key to making this work, however, is to actually do it, and then demonstrate positive results where it counts - and to corporate executive management, that means at the bottom line.

Comments

[panasianbiz]

Part of the reason why these blunders occur, in my opinion, is that the interview process for applicants needs to include more open-ended and innovative questions. People memorize rote responses if not prodded to say something more substantial and meaningful.