Hiring blunders drain the bottom line

Nearly one half of organizations said a bad hire costs twice an employee's salary
|hrreporter.com|Last Updated: 04/25/2006

Recruiters and hiring managers have a lot to answer for, according to a recent survey. Replacing a bad hire can cost as much as five times the employee’s annual salary in recruitment, training, severance and lost productivity.

Management consultancy Right Management surveyed 444 North American organizations to discover the cost of a hiring blunder. Forty-two per cent said it cost them twice the employee’s annual salary, while 26 per cent said it cost them three times the employee’s annual salary. While 15 per cent fork out an amount equal to the employee’s annual salary, an unfortunate 11 per cent said it cost five times the employee’s annual salary to right the hiring wrong.

“A bad senior-level hire or promotion can severely damage a company’s external brand, affecting customer trust and loyalty, and resulting in lost commercial opportunity," said Mary Marcus, vice-president and national practice leader of Right Management. "Similarly, erosion of shareholder and investor confidence in leadership can result in declining stock values. The higher the position, typically the more costly the hiring or succession mistake.”

The repercussions, however, don’t end there.

The main consequences identified by participants are non-monetary but cost organizations dearly: lower employee morale, identified by 68 per cent and decreased employee productivity, identified by 66 per cent. Fifty-four per cent identified lost customers or market share, 51 per cent said that higher training costs was a main consequence, as were higher recruitment costs, at 44 per cent, and higher severance costs, at 40 per cent.

“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.”

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