I used to play a game where I would rate a professional basketball player as either overrated, underrated, or properly rated.
As you can imagine, as soon as a player gets more and more mentions as being underrated, their awareness starts to go up and, ironic as it may seem, they start to become overrated because they were so underrated to begin with.
The reason I use that analogy is because no matter what business you’re in, it is always hard to properly rate the value of something without deviation. The cost of a bad hire used to be outright ignored by most companies, but now the pendulum has swung the other way.
The real question is: are we now overrating the cost of a bad hire?
Does a bad hire really cost $840,000?
I received an infographic from Resoomay (the full image is at the bottom of the post) that says the cost of a bad hire (who they describe as a middle manager making $62k for 2.5 years) is a whopping $840,000. That includes recruiting, total compensation, severance, disruption and opportunity cost.
Does that seem right to you? I asked a few colleagues on Facebook and got some interesting responses.
Daniel Crosby of Incblot wrote in a recent post, “In their book ‘Topgrading’, Brad and Geoff Smart interviewed 52 organizations and asked them to calculate the true cost of their bad hires. When factoring in the time wasted, lost production, and other collateral costs, the true cost of a mis-hire of someone making $100,000 was estimated to be a staggering $1.5 million dollars.”
That seems to align closely with the proportions of the number cited here. But there is an issue with that.
“The problem is most executives just don’t buy the soft HR math,” says frequent TLNT contributor Tim Sackett, Executive Vice President at HRU Technical Resources. “They will agree there is a cost, but that number seems so high they refuse to believe it.”
“I imagine it’s hard to quantify what didn’t get done,” writes Rob Dromgoole, Recruiting Director at Pacific Northwest National Laboratory. “But from a scientific side, I’d stick to what you can actually quantify.”
The real problem: Inaction and no will to change
Of course, the real problem is regardless of the actual number, a bad hire is expensive and shouldn’t be taken lightly (that’s just as dangerous as overemphasizing it).
And since there is no real way of defining the cost of a bad hire in a universal, accepted way, we could talk about what the actual number is all day long. The fact is, even if the number is half (or a quarter) of that $840,000 figure, that’s still a lot. So what’s the core of the problem?
It has to be two things: inaction and a lack of will to change.
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The inaction part is the easy one. If you let a bad hire sit on your payroll for 30 months, that costs real money — money your executives should see. If you can make a quicker decision once you really know someone is a bad hire, that will save not only that real money but also all of those soft costs that are harder to calculate, like disruption and opportunity cost. And showing that hard number, even without all of those harder to prove numbers, should make your executives a bit uncomfortable about pulling the trigger on a risky hire.
The problematic expense
If your company has a regularly occurring problem of hiring poorly, there might be a serious lack of will to change course. Everyone has a bad hire at some point and you should be able to afford it, no matter the cost.
The real problem isn’t a bad new hire (at any cost, really), it is multiplying that number by 10, or 100 or 1,000, depending on the size of your company. That goes from an occasionally painful and expensive lesson to a financial problem well beyond the scope of most rogue expenses.
The problem isn’t that bad hires cost so much (or that bad hires cost a certain dollar figure), it is that this process is repeated over and over again with little changing.
What can you do? Well, you can fire someone as soon as you know you made a bad hire. Give them a very generous severance package, take the expense hit and mend your financial wounds, then get on with hiring a replacement differently than before.
And if you repeat this process over and over again, run your numbers conservatively, multiply them by your bad hire rate, and either take responsibility yourself for lowering your rate, or, push it up the chain until it is an organization-wide issue.
Beyond that? Hire better, as often as you can, no matter the cost (or, almost no matter the cost). But that’s a post for another day.