The cost of your company’s bad hiring decisions can be staggering. To calculate this cost, I tell my clients to add the first-year turnover rate to the percentage of people who the company wouldn’t rehire. This number is your company’s Bad Hiring Rate (BHR). Next, I ask them to multiply the BHR with the total increase in payroll for new hires to calculate the cost of bad hiring decisions at your company.
As you’ll see from the example and graphic below, this can be a huge number whether you’re hiring a few people or more than a thousand employees.
For instance, if you hired 100 people this past year and turnover was 10% and there’s another 10% who you wouldn’t rehire, at 20% X 100 X $100,000 in average payroll, this is a wasted $2 million! And that’s not even taking into account the positive impact stronger people would have had or the disruptive impact the bad hires made.
The Staggering Cost of Bad Hiring: Bad Hiring Rate (BHR = Turnover plus percent wouldn’t rehire) X Total New Hire Payroll (# new hires X $100,000) = Wasted Money (unbudgeted expense for bad hiring) Example for 100 new hires at $100k/person average payroll: (10% turnover + 10% no rehire = 20%) X (100 new hires @ 100/k each = $10 million) = Waste $2 million for every 100 new hires
Fortunately, clues abound at every stage of the hiring process that suggest a bad hiring outcome is likely. Here are some of the most obvious:
1. The hiring team is not in agreement with respect to actual job needs
This is the #1 cause of bad hiring decisions, but the solution is easy. Before interviewing anyone, the interviewers need to agree on the answer to this question: “What must the person in the role do during the first year in order to be considered a successful hire?“ Usually this is 5-6 KPOs (Key Performance Objectives) or OKRs (Objectives and Key Results) describing the major objectives and critical subtasks.
2. Candidates are too vague about why they want the job
Before formalizing the offer, ask candidates to describe why they want the job. An appropriate response should include specific details about the actual work (the KPOs), the hiring manager’s leadership style, and an explanation of how the company/industry can offer the candidate continuous growth. A lack of these details may indicate an interest more in the compensation package and not the work itself, which will make on-the-job success and satisfaction problematic.
3. The evidence interviewers use to justify their yes/no decision is vague or unrelated to the actual requirements of the job
It’s my opinion that good evidence includes dates, metrics, and specific details about the candidate’s past performance doing work most comparable to the required KPOs and OKRs described in the job description. It is not possible to accurately predict someone’s performance when they’re hired without this evidence, or when it’s based on emotional bias or generic competencies.
4. The strongest candidates opt-out early in the process or reject the offer
Recruiters and hiring managers need to agree on the best prospects before contacting anyone. The number of those top prospects who actually agree to be interviewed, complete the rigors of a series of interviews and assessments, and accept an offer is a good indicator of the ability of a company’s recruiters and hiring managers to attract the best for the right long-term career reasons.
Amazon’s talent bar-raising program is a good proxy for this entire “How to Avoid Bad Hiring Decisions” process. Its program allows an independent interviewing expert to override a hiring manager’s decision to hire someone for the short-term rather than for the candidate’s long-term satisfaction, performance, and growth. Even better, though, is to minimize the chance for these rejections by implementing what I call a Win-Win Hiring process at the beginning of the process, rather than inspecting it out at the end.
In my Win-Win Hiring process, success is measured at the candidate’s first-year anniversary date, not their start date. If this process is implemented, you’ll find that the hiring manager and new employee both still agree it was the right decision for them to take the job one-year later. This seems like common sense, but in many cases it’s a paradigm-shifting idea that results in hiring stronger talent while saving millions in the process.