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What Bad Hires Really Cost Companies (Hint: It’s More Than Just Morale)

December 13th, 2012 Comments off

Bad hires cost some companies as much as $50,000, new survey reveals.

According to a new CareerBuilder study, 69 percent of employers reported that their companies have been adversely affected by a bad hire this year, with 41 percent of those businesses estimating the cost to be over $25,000, and 24 percent said a bad hire cost them more than $50,000.

“Whether it’s a negative attitude, lack of follow through or other concern, the impact of a bad hire is significant,” said Rosemary Haefner, vice president of human resources at CareerBuilder, in a statement for the press release. “Not only can it create productivity and morale issues, it can also affect the bottom line.”

What’s driving up the cost of a bad hire?
The price of a bad hire adds up in variety ways. According to the survey, the most common money-sucks that result from a bad hire are:

  • Lost productivity (39 percent)
  • Lost time to recruit and train another worker (39 percent)
  • Cost to recruit and train another worker (35 percent)
  • Negative effects on employee morale (33 percent)
  • Negative impact on clients (19 percent)
  • Fewer sales (11 percent)
  • Legal issues (9 percent)

What defines a “bad” hire, anyway?
When classifying what makes someone a bad hire, employers reported several behavioral and performance-related issues:

  • Quality of work was lackluster (67 percent)
  • Failure to work well with other employees (60 percent)
  • Negative attitude (59 percent)
  • Attendance problems (54 percent)
  • Complaints from customers (44 percent)
  • Failure to meet deadlines (44 percent)

Why do bad hires happen to good people?
When asked what accounted for the bad hire, survey participants reported the following reasons that led to their hiring mistakes:

  • Needed to fill the job quickly (43 percent)
  • Insufficient talent intelligence  (22 percent)
  • Sourcing techniques need to be adjusted per open position (13 percent
  • Fewer recruiters to help review applications (10 percent)
  • Failure to check references  (9 percent)
  • Lack of strong employment brand (8 percent)

One-in-four employers (26 percent) stated they weren’t sure why they made a bad hire and said sometimes you just make a mistake.

“How to Avoid Making Bad Hires”: Readers and Experts Weigh In
The following pieces of advice come from both The Hiring Site readers and subject matter experts profiled on the site, all providing personal advice on dealing with bad hires.

“Part of hiring well comes down to who’s doing the interviewing. There are some people who can hit a fast ball and some people who can’t. Likewise, there are some people who are great at interviewing and some who aren’t. There’s some element of natural talent there. And that realization has had a profound impact on my company. It used to be, when I hired, only 30 or 40 percent of the people I hired worked out great, and now it’s up to 80 percent. And that’s because we’re much better at hiring.” - Jay Goltz, author of The Street-Smart Entrepreneuer

“In many companies, recruiting processes have trended towards demanding a full set of required skills for a candidate to be considered. This practice greatly narrows the field for the hiring selection. Companies that identify minimum, essential core skills for each position and focus more on the personal attributes of candidates will end up making better hiring decisions.” - Michael Howell, The Hiring Site reader

“The way to avoid ‘rushing to hire’ is to not wait until there’s an open requisition to recruit for. Continuous recruiting by your current employees and hiring top talent when you find them – not when you desperately need them – is the key.” - Rod Swartwood, The Hiring Site reader

“When I think of why people don’t succeed, it’s not because they don’t have technical skills. It’s because of those intangibles that don’t come up in interview that are hard to judge.” People who worked with that person know [if the candidate has those intangibles].” - Kevin Ryan, Gilt Group CEO, on the importance of checking references

“Most supervisors aren’t taught best practices in hiring, not to mention employee management…It behooves businesses to take some time to learn best interviewing practices to avoid some of the tangible and not so tangible costs of making poor hires.” -Dianne, The Hiring Site reader

“You can bring someone off the street [to replace a bad hire], but it’s not going to guarantee you’re going to find someone any better, especially if you haven’t done any of the internal organizational work to prevent you from hiring the same type of person.” -Anne Loehr, author of A Manager’s Guide to Coaching, on avoiding making the same hiring mistakes over and over

What’s the True Cost of a Bad Hire?

December 16th, 2011 Comments off

They may not have experienced the type of PR nightmares that Netflix experienced from its ill-conceived decision to launch Qwikster or Yahoo! Inc. saw after firing CEO Carol Bartz over the phone, but two-thirds of American companies say they’ve made business mistakes this year they wish they could take back. Those mistakes, according to a new survey, came in the form of bad hires, the results of which ended up costing them in more than just bruised egos.

According to a new CareerBuilder survey on the cost of a bad hire, 69 percent of employers reported that bad hires lowered their company’s productivity, affected worker morale and even resulted in legal issues.

Forty-one percent of companies estimate that a bad hire costs more than $25,000, and one in four said it costs more than $50,000.

While some mistakes are beyond the hiring manager’s control, there are ways to avoid hiring the wrong person. “The more thoroughly the candidates are vetted, the less likely they will be a poor match,” says Rosemary Haefner, vice president of human resources at CareerBuilder.

Haefner advises employers to allow job candidates the opportunity to meet as many employees in the department as possible – especially if they will work closely together. Also, candidates should provide ample evidence to show they have the skills and work experience required for the position.

Hiring mistakes happen…but why?
When asked to give a reason for the bad hires, an estimated 34 percent of employers attributed the mistake to the fact that sometimes things just don’t work out. A rushed decision, however, topped the list of reasons companies gave for making a bad hire.

The price of a bad hire: It’s more than just money
The price of a bad hire adds up in variety of direct and indirect ways. For example, 9 percent of companies said bad hires result in legal issues and 11 percent said they result in fewer sales. The most common effects of a bad hire are:

  • Lost worker productivity: 41 percent
  • Lost time to recruit and train another worker: 40 percent
  • Costs associated with recruiting and training another worker: 37 percent
  • Negative impact on employee morale: 36 percent
  • Negative impact on client solutions: 22 percent

How bad is bad? Characteristics of a bad hire
When it comes to what makes someone a bad hire, employers reported several behavioral and productivity related problems:

  • Failure to produce the proper quality of work: 63 percent
  • Failure to work well with other employees: 63 percent
  • Negative attitudes: 62 percent
  • Immediate attendance problems: 56 percent
  • Subject of customer complaints: 49 percent
  • Failure to meet deadlines: 48 percent

Can bad hires turn into good employees?
For more tips on how to avoiding hiring mistakes, check out the recent interview with Hire with Purpose author Jay Goltz. Wondering whether to fire or try to fix an employee?  Get insight from this recent interview with management expert Anne Loehr, author of Managing the Unmanageable: How to Motivate Even the Most Unruly Employee.

Hire With Purpose: Q&A With Small Business Expert Jay Goltz

October 26th, 2011 Comments off

“I’m not looking for great storytellers. I want to figure out what makes people tick and how they operate on the job.” – Jay Goltz

In the following Q&A, small business expert Jay Goltz draws from his experience as an entrepreneur to discuss the lessons he’s learned – often the hard way – about what it really takes to hire and retain the best people to run a successful business (or, in his case, five). On Wednesday, November 9, Jay will host Hire with Purpose, a complimentary webinar to discuss insider tips, takeaways and tactics small business owners can apply right now to ensure they make the right hiring decision for their teams.

In your book, The Street-Smart Entrepreneur, you talk about lessons you learned the hard way. What’s your most memorable lesson in terms of hiring? I once interviewed a sales manager at a retail shop that had five salespeople, and I asked her, “How many people did you go through before hiring those five great salespeople?” And she said, “Just five.” I literally laughed and said, “Either you have much lower standards than I do, or you’re a hiring guru.” I hired her, and she turned out to be a hiring guru. She moved away about 10 years ago, but most of the people she hired while she was here are still with me.

The lesson there is that part of hiring well comes down to who’s doing the interviewing. There are some people who can hit a fast ball and some people who can’t. Likewise, there are some people who are great at interviewing and some who aren’t. There’s some element of natural talent there. And that realization has had a profound impact on my company. It used to be, when I hired, only 30 or 40 percent of the people I hired worked out great, and now it’s up to 80 percent. And that’s because we’re much better at hiring.

At the recent Inc500/5000 Conference, Gilt Group CEO Kevin Ryan mentioned how reference checks are often an underrated virtue of the hiring process. What’s your stance on that? I totally agree with that. Whenever I hear about people who are having problems with an employee, I always ask them, “Tell me how you hired this person.” No one has ever said to me, “I put an ad out, I interviewed a lot of people, I did some really thorough questions, and then I really checked references.” It’s always, “Yeah, I didn’t check references.” So people are getting what they deserve, I’m sorry to say.

The other thing is, when you’re doing reference checks, you have to read between the lines. I had a call in about a designer one time, and the reference just blurted out, “Oh, she’s really talented.” After interviewing [the candidate] some more, I realized she was really neurotic, but the woman I used as a reference clearly didn’t want to say that. All of a sudden, it made sense why the reference didn’t say, “She’s great. You should hire her.” When someone’s a great employee, people say things like, “Oh, you’re really lucky she applied. You should hire her right now. She’s a wonderful employee. I really miss her.”  Is reference-checking 100 percent reliable? No. Even if you do everything right, you’ll still probably only have a 90 percent chance of them working out – maybe 80. But if you don’t do everything right, those chances go down to 30, 40 or 50 percent.

Aside from failing to check references, what are some of the biggest mistakes people make in the hiring process? They don’t ask right questions on the interview. They don’t drill into the reasons people left their previous jobs. I’ll ask them, “Did you quit or get fired?” And a lot of times, they’ll say, “Well, it was sort of a combination of both.” And I go, “Oh, really? So you quit, and your boss said, ‘That’s such a coincidence – I was just about to fire you.’” To me, that sounds like bull.

Other mistakes people make include asking bad questions, not listening to the answer, hearing what you want to hear, or not asking enough follow up questions. I follow up with stuff, because the fact of the matter is, if someone’s looking for a job, (unless they’re straight out of school) there’s a story to tell. People change jobs for a reason. One of my favorite questions to ask is, “Tell me about the most difficult customer situation you’ve had to deal with, and how you dealt with it?” Those [behavioral questions] are always telling. I always say, “Past performance is the best indicator of future performance.” If someone’s had six jobs in the last two years, they’re probably not going to be with you too long. Questions like “Who’s your hero?” might work for some people, but I’m not looking for a great storyteller. I really want to figure out what makes them tick and how they operate on the job.

What specific traits do you look for when you hire? I have four things I look for, which we call the BATH test. B means I want someone who buys into the concept. In our case, the concept is that we’re a design company, we’re a customer service-driven business, we do what we can to take care of the customer, and we treat people well. I look for people who buy the concept of what we do and are into it. A means they’re able. I want to know from past jobs that they have the ability to do this, not just someone who says, “I’d like to do that. I’d probably be good at it.” The chances of that being true could be as low as 25 percent (when it’s a highly skilled position) – and it’s not that they’re not lying, they just don’t know. I want someone who has a proven track record. T means they’re team players. I want someone who’s going to tell me what’s on their mind, who can tell me right to my face, “Jay, you’re driving me nuts. What can we do about this?” And finally, H is for hungry. I want someone who’s hungry, who really wants to do this.

In your upcoming webinar, one of the topics you’re going to cover is creating compelling job advertisements. What constitutes a ‘compelling’ job ad?  A compelling job ad includes some piece of information about your company that might make candidates stop and take notice. Maybe you can offer them flex time, for instance. Or how about free parking? What about 401(k) plans, or health insurance plans? Employees are more enlightened these days. They want to work at a company where they have input in the decisions that are being made. The best employees are mission-driven. So if you can let them know that they’ll be involved in things at the company, that’s compelling.

What do you do to orient new hires into the company? After they’ve been here a month or two, we have an indoctrination where we tell them things like the whole mission of the company, where we came from, the history, as well as more tangible stuff such as if they have a problem, what they should do about it, etc. And we purposely don’t do it on the first day. We wait till they get a little used to the place, so that at the end of it, we can go, “Okay, do you think I’m lying, from what you’ve seen?” So at least one time, they’re sitting there with the big boss, and I’m telling them, “Look, if you think I’m full of it, call me on it. Feel free – I’m telling you right now: stop me in the hall, leave me a note, give me a call. If there’s something I’m telling you that really isn’t the case here, please tell me!” It lets people know we believe what we say, and if they’re not happy here, what they can do about it.

What is your stance on exit interviews? We do them. Our HR department conducts them, but, personally, I’ve never gotten any huge revelations out of them. That’s not to say that exit interviews are worthless, but if you’re running a good business where there’s open communication, you shouldn’t need exit interviews. If you’re learning something new, that’s the symptom of a problem. You shouldn’t be learning anything new in an exit interview. There’s a value in it, but they’re like seatbelts: Most of the time they’re useless, but once in a while, it might really make a difference.

Jay Goltz is a nationally recognized author and speaker on the topic of running a successful small business. Jay has been featured in various media, including Fox Business News, Inc. Magazine and Bill Clinton’s bestseller, Giving, and is currently a business blogger for NYTimes.com.

Want to get a free copy of The Street Smart Entrepreneur: 133 Tough Lessons I Learned the Hard Way? Simply register now for Hire with Purpose (happening live on Wednesday, November 9 at 1 pm CST), and be one of the first 100 attendees. Learn more…