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Apr 22, 2015

For executives imbued with hiring power, perhaps no greater pitfall exists than the hiring of management staff earning $80,000 and beyond.

Besides the immediate costs of salary and recruiting, there are hidden costs that go along with any miscalculation, which can number into the tens of thousands of dollars. Plus, hiring management level professionals who don’t fit or aren’t up to the job run the risk of a trickle down effect in terms of productivity and morale. If talented employees recognize that their immediate superiors are not up to the job, they will be quickly on the lookout for new and better opportunities.

In terms of talent drain and morale, the cost of a bad hire on the management level can be difficult to calculate. Here’s a primer on how much a bad hire can really cost you at the end of the day, and how to avoid that unfortunate eventuality.

You can’t afford to make bad hiring decisions

Fred Yager, editor of eFinancialCareers, estimates that a bad hire can cost a company anywhere between two and a half to five times the employee’s salary. So this means that a manager earning $80,000 a year could cost you anywhere from $200,000 to 400,000 in hiring and replacement dollars.

These costs account for anything from compensation for interviews and relocation costs at the front end of the hire to severance and COBRA fees after termination. In the middle of all of this, your organization may experience employee dissatisfaction and subsequent turnover in the wake of a bad hire, which will redouble your HR costs for finding and hiring replacements.

There are some very real, worst-case scenarios where a poorly-chosen manager can cause a company to become completely stalled, cause you to lose a fair amount of your talent pool, and cost you astronomical figures to resolve the mistake and set the ship right again.

The reality of it all is that corporations of any scale cannot afford to make bad hiring decisions. Even those companies that get off easy in this regard will still invariably be paying a substantial bill at the end of the day.

Fortunately, there are a few things organizations can do to avoid these expensive mistakes:

1. Use predictive analytics during hiring

From major league baseball to Fortune 500 boardrooms, cutting edge executives have adopted predictive analytics as a method to streamline hiring and allocate resources with startling efficiency.

The current data revolution allows managers and their potential hires to meet on a level playing field, where everything from a social media profile to a face-to-face interview can provide both parties with enough information to avoid a potential bad fit. Take advantage of these new technologies or risk being left behind.

2. Know your own business

What is your business model? Are you office-centric, with the assumption that workers spend 60 hours a week on site?

If so, then you may not want to entertain the savant creative who does his best work off the grid. Alternatively, if you’re interested in genius at any cost, then the brilliant eccentric who can’t find the office with a GPS might just be your deliverance.

Before you hire, know yourself, your expectations, and the expectations of your staff that will be managed by this individual. Both traditional and more innovative business models can be made to work, but only if you and your employee fully grasps the expectations facing them.

3. Stay ahead of potential pitfalls

One of the difficulties that accompany a bad management hire is that often you are not going to be able to identify the problem until it has metastasized well beyond repair. However, savvy use of quantitative and qualitative data might allow you to forecast any trouble on the horizon before it happens.

This could involve a combination of using predictive data to keep abreast of workforce trends and observing and talking to your employees about their current job satisfaction.

As we gain more understanding of how big data can be harnessed and deployed, organizations will soon be able to predict everything from which hires will ultimately fail to causes of potential employee burnout and turnover.

With the knowledge that analytical and anecdotal data can provide, you will likely be able to avoid a bad hire before he or she walks through the door.