The real cost of poor recruiting
Recruiting poorly may cost more than you think, not just in financial terms either.
A few facts from the recent REC survey ‘Perfect Match’
85% of those surveyed admitted that their organisation had made at least one poor hire in the last 12 months
33% of managers believe that poor hiring, even at senior management, costs them nothing
20% of hiring managers admitted they have no idea how much a bad hire costs.
88% of business leaders admitted to allowing a ‘toxic worker’ to stay in the company too long.
27% Turnover of staff moving to different employers in the Financial and Insurance sectors from January 2017 to December 2018 (Office of National Statistics)
2 in 5 hires turn out to be bad hires within the first 18 months
So, what constitutes as a bad hire, and what are the tangible and intangible costs on the organisation?
A bad hire is simply the employing of a person who is not aligned with the corporate’s vision, culture, and business goals. In essence a bad hire can be termed as a liability that can turn in to a major stumbling block for the success of any organisation.
A question we often ask is “How many people that you employed in the last 12 to 24 months have you retained for 12 months or more?”
The response quite often is said with pride that they have a 75% or even 80% retention rate, almost as a badge of honour. Let’s turn that statement on its head - you are happy with a 20-25% failure.
In other words, 1 in every 4 or 5 hires is not going to work out and will incur an additional cost to the company.
How much does a bad hire cost an organisation and what are its component parts?
The cost of a poor hire is not just the recruitment cost to replace, that in fact is a minor cost of the totality.
A company hires a Manager (Employee A) on a salary of £42,000, provides an initial 4 weeks training and on-boarding. However, the employee fails to make the grade and is let go of/leaves 8 months later. The Company then runs a combined in-house/agency recruitment for the replacement, culminating in Employee B joining the company 5 months later and also receives 4 weeks initial onboarding and training.
Due to the initial bad hire the rest of the team (4 people) had to work overtime to cover the vacant position and also rectify the mistakes made by Employee A. Team resources were reallocated and procedures repeated. Staff morale took a dip and complaints raised due to disruption and increased workload, which in turn affected quality. Before Employee B had reached optimal productivity (normally 5 months in to role), Senior Team Member C left the company as a direct result of the problematic structure and work dynamics.
Cost calculations of a bad hire for this example company.
Employee A - Direct Costs
Wasted Monthly Salary 8 months £28,000
Training Provided External cost and management time £1,500
Employee B - Direct Costs
Agency Costs 15% of salary £6,300
In-House Recruitment Cost Placement of advert on-line £200
Time spent by senior management
directly dealing with recruitment
activities (2 staff combined salary
of £65,000) for 2 weeks. %of monthly earnings £2,500
Training Provided. External cost and management time £1,500
Lost productivity until reaching
optimal levels. (1st and 2nd months = 25% productivity,
3rd and 4th months = 50% productivity,
5th month = 75% productivity) £9,625
Total cost £20,125
Indirect Costs - team morale
Lost Productivity 5 Team members with average salary of £35,000 at an average of 80% productivity, for 10 months (5 months before Employee B Joined and 5 months until Employee B reached optimal productivity)
- £5,832 per team member £29,160
Staff Turnover Employee C on a £45,000 salary,
average 120% of annual earnings £54,000
Total cost for a single bad hire £132,745
Even if Senior Employee C were to remain, the cost for a single bad hire at this level would be £78,745
A bad hire impacts not only in terms of initial wasted outlay of cost and training, but also time to find a replacement, lost productivity, reduction of department morale.
Why does a bad hire happen?
Employees are the most important and valuable asset of any institution, yet business continue to under-invest when it comes to hiring. The past decade’s mantra of ‘fast and cheap’ has resulted in organisations and recruitment agencies missing out important recruitment processes, including:
· Lack of detailed research into the market and candidates specifically.
· Not enough time taken to understand the corporate’s actual business needs and the manner in which the role will provide solution.
· Poor verification and match of skills and competencies, from the candidate to the corporate requirements
· Poor interviewing skills and capabilities of corporate decision makers (a growing trend of concern)
· Superficial tick box reference checking, instead of in-depth 360 referencing
· Accessing only a small, diversity poor, talent pool via applicant tracking systems.
At Charteris Global Search we take care to understand the requirements and culture of the client, we look to understand the business issues and look to find the solutions for the client, conduct in-depth research into the top talent in the market, create a meaningful and enhanced candidate experienced, personalised to each candidate, thereby identifying, attracting and engaging the top talent for the client.
Our commitment to our clients is simple, should a candidate we place leave within 12 months we will find the replacement candidate at no cost to the client*.
Are you Looking to recruit someone, or, are you looking to recruit someone who stays long-term?
Recruit Well, Recruit Once
(1) Sources from Recruitment and Employment Federation - Perfect Match. Plamen Ivanoff, CEO, i-intro, www.i-intro.co.uk. With figures complied using Oxford Economics calculations. (2014) The cost of the Brain Drain; understanding the financial impact of staff turnover.
* subject to terms and conditions