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"If the new employee doesn't work out, I'll fire them and bring someone new in."
If I had a dollar for every time I heard a manager say this, I wouldn't be here writing this article. Instead, I'd be sitting on a beach on some tropical island consuming my favorite beverage.
I cringe when I hear this type of comment. Not only is it a misinformed approach to hiring, it's extremely costly.
A study by the Society for HR Management estimates the cost of a poor hire for intermediate positions at $20,000, senior management at $100,000 and sales representatives at $300,000. Pierre Mornell, in his book Hiring Smart, says that if you make a mistake in hiring and you recognize and rectify the mistake within 6 months, the cost of replacing the employee is two and one-half times the person's salary. For example, if you were to use this formula, the cost of a poor hiring decision for a candidate earning $50,000 per year would be $125,000! WOW! That's a staggering amount of money and it comes right off the bottom line.
In his article "Staffing can cost you in more ways than one" published in the Medical Post (2003), Doug Payne writes: "Hiring a new employees costs $1,580 on average...To terminate and replace one employee costs an average of $68,112."
Why are the costs so high? There are a number of hard and soft costs that can be factored into a poor hiring decision.
Some of the hard costs include the time you invested in interview preparation and planning, time spent interviewing the candidate, the cost of training and orientation, employment testing, termination costs and interview costs like travel, hotel and meals. As well, they could include potential litigation costs, should the candidate decided to sue you for wrongful dismissal, relocation costs and outplacement or career transition costs.
Then, there are the soft costs - the ones that a hard to measure but could be lethal to your business. They include but are not limited to things like reduced employee morale, customer dissatisfaction, lost customers, lost sales, low productivity, reduced quality of products and services. There's also the cost of the time and energy you, as the manager, spent dealing with performance related issues.
Brad Smart, in his book, The Smart Interviewer, says: "It's a heck of a lot easier to hire the right people to begin with than to try to fix them later..." I agree whole heartedly.
So, take your time and be patient. Develop a comprehensive hiring plan and execute it flawlessly. Remember, no hire is better than a bad hire.
If you know of someone who would like to read this article, please feel free to pass it on to them.
Dave Hagel is a Certified Human Resources Professional and President of High Performance Human Resources, a company that specializes in providing human resources services to small to medium sized entrepreneurs. You can reach him at dave@highperformancehr.ca or phone, toll-free 1.866.878.4134.
Last revision on October 10, 2006
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