The Cost of Making a Bad Hire

In the competitive landscape of business, hiring the right employees is crucial for success and growth, with the consequences of making a bad hire often being far-reaching and detrimental to any organisation. The repercussions that arise from hiring the wrong person can negatively impact a company’s productivity, team morale, company culture, financial costs, and long-term reputation. 

A study conducted by Leadership IQ found that 46% of newly hired employees will fail within 18 months, while only 19% will achieve unequivocal success. Whilst the reasons behind businesses making bad hires are ambiguous, a CareerBuilder survey asking employers what made them think they had made a bad hire found that 35% said that while the candidate didn’t have all the needed skills, they thought they could learn quickly, 33% said the candidate lied about his/ her qualifications, and 30% felt pressured to fill the role quickly.  

When businesses fail to invest enough time and resources in attracting and assessing candidates, they will often overlook important qualifications, experience, or overall cultural fit. And at what cost? 

Financial 

Making a bad hire can have significant financial implications for a business. According to research conducted by CareerBuilder, the average cost of hiring the wrong employee is $17,000. However, depending on the role and the company, research from the US Department of Labor in 2021 found that this figure can go as high as $240,000. The costs associated with recruitment, training, and onboarding are wasted when an employee is unable to perform their duties or leaves shortly after being hired, often costing a company between 30% to 150% of the employee’s annual salary, with the risk of additional costs relating to severance packages, legal obligations, and potential litigation if the termination process is not handled properly.  

Aside from the direct financial loss relating to recruitment and training, making a bad hire has a negative impact on productivity, decreased customer satisfaction, and potential loss of business opportunities, resulting in more long-term financial losses that may take considerable time for a business to recover. Research by Gallup estimates that ‘actively disengaged employees in the United States cost businesses anywhere from $450 billion to $550 billion in lost productivity each year’, not to mention the cost of re-hiring and training the replacement.  

Decreased Productivity 

One of the immediate repercussions of a bad hire is a decline in overall productivity within the workplace. A mismatched employee may lack the necessary skills, knowledge, or motivation to perform their duties effectivity, leading to a decrease in output and quality of work. The Society for Human Resource Management (SHRM) found that supervisors spend, on average, 17% of their time managing poorly performing employees, with it taking around 6 to 9 months on average to train a new employee.  

Over a period of time, the amount of investment an organisation puts into a new hire versus the output in return can have a real impact on the overall performance and productivity of the company, causing delays in projects, missed deadlines, and additional burdens on other team members to compensate for the poor performance, ultimately hampering the company’s growth and success.  

Damage to Team Morale and Company Culture   

A bad hire can significantly impact team morale and dynamics, affecting overall productivity and the ability to achieve organisational goals. When a new employee fails to fit in with the existing team or disrupts the cohesion and synergy, it creates tension and dissatisfaction among colleagues. Studies have shown that over 80% of employee decisions to quit have been caused by other employees, as often it can ruin the atmosphere in the office. A lack of harmony can lead to a toxic work environment, decreased collaboration, and increased employee turnover as valuable team members become disengaged or seek opportunities elsewhere.  

A bad hire may exhibit behaviours that are contrary to the company’s values, negatively impacting the influence of other employees and tarnishing the overall culture. Research from SHRM surveying more than 2,100 CFOs found that 95% said a poor hiring decision at least somewhat impacts the morale of the team, with more than one-third (35%) saying morale is greatly affected. Increased stress from team members can lead to absenteeism and lack of motivation, leading to fewer sales and a lower standard of customer service, as well as often breeding resentment and blame from existing team members towards management for their poor hiring decisions.  

Long-term reputation 

A bad hire can damage a company’s reputation, both internally and externally. Internally, employees may lose faith in management’s decision-making abilities, leading to a lack of trust. Through ‘word of mouth’ and a reputation of high employee turnover, bad hiring decisions and an unpopular company culture, companies can struggle to attract and retain top talent to their business.   

Externally, a bad hire can negatively impact relationships with clients, partners, and stakeholders, eroding trust and confidence in the organisation. Bad hires can negatively impact client-facing relationships, which after being damaged are notoriously difficult to repair and rebuild once the trust has been broken, consequently resulting in significant opportunity costs for the business.   

Making a bad hire can have extensive repercussions for a business, affecting productivity, team morale, company culture, finances, and long-term reputation. A key area in which you can eliminate cost is through careful consideration of your recruitment agency, helping to reduce the risks involved with bringing a new employee onboard through their knowledge of industry sectors, client requirements and candidate capabilities to help select the right person.  

At LMRE we strongly believe in building long-term partnerships. With our global presence and market knowledge, we are confident in the consultative advice we give our clients to ensure the best result in their expansion plans. If you are looking to hire and grow your business, get in touch with one of our specialist consultants! We are here to help.   

References  

Agency Central; What is the cost of making a bad hire?  

Apollo Technical; The Cost of a Bad Hire and Red Flags to Avoid. (11th January 2023) 

CareerBuilder; Nearly Three in Four Employees Affected by a Bad Hire, According to a Recent CareerBuilder Survey. (7th December 2017) 

CareerBuilder, Ben Goldberg; 75% of Employers Have Hired the Wrong Person, Here’s How to Prevent That. (17th November 2016) 

Leadership IQ; Why New Hires Fail (The Landmark “Hiring For Attitude” Study Updated With New Data).  

Public Sector People, Emily Harris; The consequences of a bad hire and what you can do to minimise the risk. (June 2021) 

Society for Human Resource Management (SHRM), Roy Maurer; Morale, Productivity Suffer from Bad hires. (2nd February 2015) 

The Sterling Choice; The Cost of Bad Hires: Understanding the Impact on Your Business.  

Up Right; How Bad Hiring Affects Your Business And How to Overcome it.