How Much Would a Bad Hire Cost Your Company?

A great employee has the ability to positively impact the business he/she works for. While there are certain costs that are always present with replacing a bad hire, such as recruitment efforts, interview time, and training costs, there are several factors such the person’s seniority, number of people directly managed, department, and tenure that will determine the total eventual impact a professional has on the business. Just like a new rock-star hire can have a tremendously positive effect on the company, making a bad hiring decision can have a significant and long lasting negative effect. This is why top companies trust executive search firms to find and vet executives who may or may not have the hard and soft skills needed to be successful in the role. Below is a tool to help hiring managers and top level executives understand the impact a bad hire may have on their company’s bottom line.

Instructions:

  • Vertical – the area or department that a person works in can have varying impact on the immediate and long term bottom line.
  • Seniority – the level of seniority generally indicates the level of autonomy a person has when it comes to their job. Less oversight allows more senior professionals to make decisions that could have a huge impact – good or bad
  • Tenure – The longer a person is in a position the more opportunity they have to make an impact – positive or negative. In the case of a bad hire opportunity cost also plays an important role.
  • Competitiveness – The more competitive an industry is the less margin for error, a bad hire can be extremely costly when the stakes are high.
  • Direct Reports – The more people who report into a bad hire, the more of a negative impact they can have as well as having long lasting negative effects.
  • Base Salary – Paying someone a salary who is not helping the business succeed is by very definition a cost. Investing in people who will bring value to the company is important, but when they don’t bring value the salary becomes a cost.

Use these 6 criteria to help you determine the cost of making a bad hiring decision:

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