Costs of a Poor Hire and Tips to Avoid Mistakes
What is the true cost of making a poor hire? Jorgen Sundberg, CEO of Link Humans, an employer branding company, has indicated that the costs of recruiting, hiring and onboarding a new employee can reach $240,000. If that hire was not a good fit, due either to skills set or cultural fit, there will be additional monetary outlay in the form of both actual and opportunity costs. While direct costs, such as agency placement fees can be significant, indirect costs result from gaps in productivity, lower produce/service quality with consequent loss of revenue, as well lower morale of other employees who need to redouble their efforts to make up for the shortfall.
This article will review both real and opportunity costs of a poor hire, as well as strategies to attract better qualified talent in terms of skill set and culture fit.
Breakdown of Costs
We can identify several factors that go into calculations of replacement costs. These factors include:
Real Costs
- Costs of job advertisements which can range from $300 to $1000 per post
- Agency fees which typically range 18% to 25% of the employee’s annual salary
- Salaries of in-house recruiters for screening resumes, interviewing, onboarding, etc.
- Salaries of training and onboarding staff including orientation and completion of reference, and background checks
- The costs of pre-employment assessments that may be part of the company’s hiring process
- Possible litigation fees if the person decides their exit from the company was unwarranted
Opportunity Costs
- Weakened employer brand as dissatisfied prior employees are not effective promoters of your organization. This can result in a loss of interest from top talent in an already competitive healthcare labor market
- Loss of productivity while the new employee is acclimated to both the role and the culture
- Weakened employee morale from increase in workload, as well as the negative impact to workplace culture
Strategies to Minimize Poor Hires
A survey by Glassdoor and the Brandon Hall Group found that 69 percent of organizations make a bad hire based on a problematic hiring process, with 22 percent reporting that they did not have sufficient benchmarking processes to adequately assess candidate fit in terms of skill set and work style. In the highly competitive candidate market in the healthcare sector, this flawed process will result in a loss of valuable talent and impact quality patient care. It’s important that recruiters and hiring managers slow down the decision-making process and incorporate additional steps to foster a more targeted approach. In sum, don’t hire to put out a fire!
Below we take a look at some strategies to build out the upfront recruiting process.
1. Define your company brand
Before you can begin to effectively recruit new employees, management first needs to understand the company’s core values and type of employee who will best fit in with this culture. It’s important for companies to distinguish themselves from their competitors and highlight what makes what makes this business a great place to work. Keep in mind that this is as much a weeding out process as a selection tool since effective branding will also help candidates self-select themselves out of the running. For example, a potential employee who values an innovative and creative atmosphere will not be motivated to apply to a company with a more rigid and conservative structure.
2. Target the candidate search
To identify the best candidates, employers need to know where to look. For example, if the facility is seeking to hire a Trauma Nurse, where would be the best places to begin the search? The answer is likely to be some combination of professional associations, colleges, online networking, and even competitor facilities.
3. Develop a candidate profile for each role
Too often, employers start the recruitment process not really knowing what they are looking for in terms of skill set and work style. Job descriptions and position summaries are helpful since they outline the education, experience and skill sets that are required. Once these factors are identified, utilize AI software to expedite the resume review process, thereby freeing up the recruiters’ time for interviewing.
However, job descriptions do not identify those traits that will allow employers to determine who will fit in best with company culture. One method is to utilize personality-based pre-employment assessment as discussed below.
4. Use pre-employment assessments
Assessments are a highly useful tool to ensure that managers are approaching the hiring process with objectivity and careful analysis of each candidate in terms of fit with regard to not only skills and knowledge, but personality traits and work style. Once assessments are chosen, it’s important to administer them under the same testing conditions across all candidates to ensure validity and allow for accurate evaluation.
Types of pre-employment assessments:
- Skill-based tests. Skills tests are used to evaluate skills in contrast with behaviors. Skill-based tests can help a company identify those candidates who will be able to adjust to changing environments, learn new information quickly, and communicate effectively. Skills- based tests include computer proficiency, clerical tasks and mathematical equations.
- Integrity-based tests. These tests determine the degree to which each candidate is honest, reliable, trustworthy and conscientious. These tests are used to evaluate a candidate’s work-related behavior in certain situations and often include question “what-if” scenarios.
- Personality assessments. Personality tests help evaluate whether candidates are team players or lone riders, possess leadership qualities, are creative thinkers, respectful of authority, exercise good judgment under stressful conditions, etc. These tests are particularly useful in measuring candidate traits that might cause friction among current employees
5. Interview effectively
Before recruiters and hiring managers can interview effectively, they will first need to create both a position profile and ideal candidate profile to identify critical success factors with regard to KSAs (Knowledge, Skills and Abilities) and behavioral traits. Once these factors are identified, interview questions may then be tailored to elicit needed information. The hiring team should prepare a pre-defined job profile so that questions may be tailored to the KSAs of the role. This process lends consistency to the hiring process, which leads to better hiring decisions and a more legally-compliant hiring process.
6. Perform reference checking
Even with the array of testing instruments above, there may still be some gaps in terms of forming a 360-degree evaluation of candidate’s suitability. For instance, most candidates will indicate that they are a team player and respect authority but only by speaking with former employers will these self-proclaimed traits be verified. This step provides the highest level of insight into a candidate’s true fit to a position as well as valuable information to improve the onboarding process. It helps recruiters to avoid bad hires and provides improved investment.
7. Focus on retention
In light of the significant replacement costs associated with new hires, many employers are implementing retention strategies to retain their current workforce, such as providing greater opportunities for training and professional development, health and wellness days (especially important for healthcare workers during COVID-19), flexible hours, job sharing and enhancements to the fringe benefit package (e.g. health and wellness health days). For more tips on employee retention, read this article.
Conclusion
Making a wrong hiring decision can have severe consequences across your entire organization. When you consider loss of productivity, damaged client relationships, potential legal issues, and the costs associated with sourcing and hiring a replacement, the impact on the bottom line can be significant. The best strategy for avoiding a bad hire is to slow down the hiring process by implementing several upfront steps that will better ensure new employees are an optimal fit, not only in terms of KSAs but also with regard to work style and cultural preference.
