What’s a company’s greatest expense? Many might guess it’s the cost of producing products, research and development, or marketing and advertising. However, for most companies, their greatest expense by far is employees. Just think about the costs associated with paying salaries, benefits, etc., multiply them across all the employees in a company, and then it’s easy to understand how Human Capital is a company’s greatest investment.
With all that in mind, what’s the best way to quantify the cost of a bad hire? And how can managers and Human Resource professionals help senior leadership understand the gravity of those costs so they’ll invest in better recruiting and selection processes?
In my experience as a Business Psychologist, I’ve found the following questions to be especially helpful. First, I ask members of senior leadership teams to think about one of their best employees and one of their worst employees. Once they have people in mind, I then ask them to describe the impact those employees have had on the company. -Their responses are usually quick, passionate, and visceral. People can readily recall the sizable benefits a high-performing employee has brought to the company (e.g., increasing profits, making wise decisions, solving problems, championing change, etc.). Likewise, senior leaders can also quickly recall the damage a bad employee caused (e.g., costly mistakes, decisions that led the company down the wrong road, low morale, higher employee turnover, etc.). Recalling those first-hand experiences is often far more powerful and convincing than calculating a specific dollar value associated with the cost of a bad hire. For example, while it’s impactful to cite that $100,000 was wasted on hiring and training a manager who underperformed anyway, helping senior leadership to recall that the same manger made a decision that botched a new product launch and cost the company millions is even more impactful (and provides deeper insight into the issue).
Once senior leaders fully recognize and “feel” the costs associated with bad hires, it’s much easier for them to see the huge return on investment that can come from improving recruiting and selection processes.