The High Costs of Bad Hires – Part I

20 Feb

Would you do things differently if you knew that a single hiring mistake would cost your company hundreds of thousands of dollars? How about if the same losses applied to the people who didn’t leave – the under-performing, disengaged members of your staff?

The reality is, a mistake does cost you that much. The most conservative estimates of turnover show costs in the range of 2 to 3 times annual salary. For a professional making $80,000 a year, that’s $160,000 to $240,000. How many $200,000 dollar mistakes can you afford to make?

Bear in mind that these are average statistics for average employees. What’s the cost of losing an A-level performer? Brad Smart, author of Topgrading – How Leading Companies win by Hiring, Coaching and Keeping the best People, suggests the multiplier is more like 27 times annual salary if the mistake involves an “A” player.1 Using Brad’s math, your $80,000 miss-hire now costs you 2.1 million!

In case you’re thinking you’re off the hook because turnover isn’t a problem in your company – think again. Research by the Gallup organization suggests that the costs of low productivity or “disengagement” as they call it, may be even higher than that associated with turnover!

Gallup found that 75% of the employees in most companies are not engaged at work. Not only are disengaged employees not making you any money, they’re also costing you money because they’re the ones making all the mistakes!

In Follow This Path, Gallup authors Curt Coffman and Gabriel Gonzalez-Molina note that “disengaged employees cost companies hundreds of millions of dollars a year.”

They estimate lost productivity cost at $3400 per $10,000 of salary. Which means that the $80,000 a year not-so-great professional that you wish had left, costs you $27,200 a year in lost productivity. And that’s only if he doesn’t make any really costly mistakes. And don’t forget – that’s not a one-time cost, its an ongoing one.

For more on what you can do to ensure you don’t make these costly mistakes, check out this article – Avoiding the Wrong Person for the Job – The High Cost of Mis-Hires.



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