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What does it cost you to hire the wrong employee?

All too often the least offensive employee is the one who passes all the hazing (and I chose that word deliberately) of multiple interviewers. How do you pick out the star from the so-so? And, what does it cost you to keep hiring the so-so employee and missing out on the star?

Answers

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

That is a great question and one we quantified. We calculated on average it costs us $6,700 for a bad hire. I believe what keeps most from hiring the so-so instead of waiting for the rock star is we need a warm body to fill the gap in hours to relieve stress from the manager and the rest of the employees in that store (speaking for retail).

It's such a hard cycle to break, however it needs to be done.

Guven Ilter
Title: Owner
Company: Ilter Consulting
(Owner, Ilter Consulting) |

The stars are usually the most difficult to work with, but have the highest potential to deliver excellent results. Most of the time however, it is the mediocre who makes the HR tick the right boxes and makes the short list. Do we really want a loyal, hardworking employee with limited potential, or a star with a few question marks? It all depends on the position.

What I have seen as a CFO and a consultant is that, the manager still has to work the long hours to get what (s)he wants plus the cost of the so-so. The usual time to realize that the so-so is not delivering is between three and six months, plus the hiring cost, interview and screening time. I think the cost would be close to 30% of the annual salary by the time we see that it is a bad hire.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Define what you mean by stars.

A so-so person with an attitude of excellence, and teamwork, can become a star for the team. A star with a bad attitude ultimately drives down the efforts of a team.

Too many companies are look for utopia with new employees. I think if anyone is trying to find out who the stars are from the so-so candidates is doing a disservice to their company.

There are too many leadership and physiology books that have affirmed excellent employees with terrible attitudes (self-serving, know-it-alls, etc.) do more harm to companies. Skill can be trained when a person is willing. Attitudes are normally embedded in people from a young age. Attitudes can be changed, it happens throughout organizations. But I would submit to anyone that skills is easier taught than attitude modifications.

With that being said, define what is meant by "stars".

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I couldn't agree more Chris! For us a rock star has all the values and behaviors we want for our culture. They have to be fun, have integrity, be respectful and relentless. We can teach someone about cell phones, but if they don't live into our companies values they are not a good fit. We also measure the Core four (which is what Chick-fil-A measures during interviews) - Enthusiastic tone, enthusiastic smile, emotional connection, and eye contact.

We have had to terminate some of our highest producers (possibly considered stars) because they lacked our values. All that does is create bad team morale.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

Two words: Bell curve.

"Average" is the largest area under that curve.

Everyone cannot be a "star".

Anonymous
(Consultant) |

whoever behave as a " value integrator " in the organization can be the star.

Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Careers
LinkedIn Profile
(CEO & COO, Treasury Careers) |

A related question, what does it cost a company to lose a valuable employee? In this world of employee turnover where people change jobs every few years I see companies letting great people go as this is "how it works in today's economy" and/or "everyone can be replaced". Competitive advantage is hard to come by and often lies in the talent of employees. Maybe you can replace talent on some level,but at what cost? It seems to be all about growth these days, and losing a valuable employee can easily slow or even derail growth.

Replacing a valuable employee with a bad hire is the worst case scenario. Figure what it takes to keep your most valuable employees happy and do not let them go without a fight. Yes, you may not want to "hold someone back", but be creative and figure out how to "let your best grow and shine" within your company, create a new position if that's what it takes.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

A spin on your related question goes to the hiring practices for the last several years. Companies have been lowering salaries and benefits; increasing workloads.

What has this perceived mistreatment going to cost when the economy swings back to "normal" and people start "bolting" to new opportunities?

Will it be too late to keep that valuable employee?

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

"How do you pick the star from the so-so?" There are a bunch of NFL, NBA, MLB, etc. owners that would love to be able to predict that on draft day.

Keith Johnson
Title: Principal
Company: Keith E. Johnson CPA PA
(Principal, Keith E. Johnson CPA PA) |

Obviously you want to pick the satar, but in this economy, you need to pick the most deserving. That's fairness

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Keith - How would "most deserving" be defined? Perhaps the most deserving isn't the person that's been unemployed several months. The most deserving, in my opinion, would be qualified veterans.

A company would need to sift through hundreds of resumes to find out who is truly deserving, then they may even make a mistake when they hire. Hiring the most deserving is too subjective. Someone that is currently out of job at the expense of the economy is one thing. Someone that is out of a job because their performance is lacking, doesn't make them deserving.

With that being said, how would you personally rate who's deserving?

Keith Johnson
Title: Principal
Company: Keith E. Johnson CPA PA
(Principal, Keith E. Johnson CPA PA) |

@ Chris: Veterans would certainly make it to the top of the ladder. They would deserve it as they fought for our country. Hard to get mad at a veteran beating you out.
Actually you need to make the hiring process as objective as humanly possible with as little room for feeling. Here's how you do it. You break things up into four categories: Relevant job experience, education, additional certifications (if necessary), and time unemployed. You assign points for each year of experience, each degree earned, each certification achieved, and each month unemployed and each relevant resume sent out. Can be substantiated by the receipts you get. Add up the points for each section, then weight the sections I would do 30% for unemployment, 30% for education, and 20% each for certifications and experience. Then simply hire the number one candidate. You can do a background check for health and legal issues, but you start out with the winner and move on down from there. The point is to objectify as much as possible the hiring process. It reduces ill will, lawsuits from jilted applicants, and gives hope to the long term unemployed. Also, the people who work harder get more points, so you have a better quality worker. Everybody wins.

Mathew king
Title: CFO
Company: Austin Habitat for Humanity
(CFO, Austin Habitat for Humanity) |

ArLyne, i have attempted to use cognitive testing as a way to help determine an EE who may be a bitter fit for a certain role, but really want to strive for a test that determines the Emotional Intelligence (EI) level, especially in leadership positions. I have found this is not as easy to find good testing on, without pulling bits and pieces from here and there. If anyone has a solid testing process for EI, I would love to get in contact with you.

I remember hearing the cost is a % of that persons salary, and it's somewhere around 30%. Probably not far off from what Christie noted.

I agree with Chris's feedback though. Most employers are look at the black and white, typically the resume, and not the gray. Very well put!

ArLyne Diamond
Title: Owner - President
Company: Diamond Associates
LinkedIn Profile
(Owner - President, Diamond Associates) |

I love these comments. I think all too often we are afraid of the stars - they might be "loose cannons" or make us look bad. They tend to be less team players and more individual contributors - BUT - they are outstanding on the right team. Personally, I loathe mediocrity and always strive to help my clients find the best.

ArLyne Diamond
Title: Owner - President
Company: Diamond Associates
LinkedIn Profile
(Owner - President, Diamond Associates) |

It is often true that you lose a valuable employee because you treat him/her exactly the same as the mediocre one. This type of loss is less likely in a meritocracy.

Keith Johnson
Title: Principal
Company: Keith E. Johnson CPA PA
(Principal, Keith E. Johnson CPA PA) |

But that's fairness and fairness is more important. Treat everyone the same, or base it on effort. The person who puts in more hours, gets more attention. Results are secondary. If you don't reward those who put in the time, why work hard?

Darrell Mahler
Title: Owner
Company: Blue Cross Laboratories, Inc
(Owner, Blue Cross Laboratories, Inc) |

How you hire a person depends on the level of job you are filling. I do not like to hire personnel in the $35-50 K salary range because, if they do not work out, it can open a Pandora's box of problems. I use a temporary agency for this type of employee and make a deal that we will pay the agency for 3 months for the employee but can bring them on our payroll after the 3 month period. This allows us to see the skill set of the person under our working conditions. If, after several weeks, they are not performing satisfactorily the agency replaces them with another applicant. This has worked great for finding the best person for the job without the hassle of bringing the wrong person onto our payroll and then having to let them go.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Similar to Guven's response, I've variously calculated it at anywhere from $20K to $60K, assuming you've managed the process well. That's the effective costs of a "bad apple", but a so-so employee isn't that. I think I'm paraphrasing Warren Buffett in saying that a good company doesn't need rockstars, quite the opposite.*

More often, I see company whose processes in general terminate the rockstar; not by filtering them out (although this of course happens), but by preventing them from being stars. At Intel we called it the Creosote Bush. The basic theory (which got much deeper) is that the systems and processes needed to keep the core business efficient was *not* conducive to innovation outside of the core, and could also be corrosive to core-innovation as well. People, ideas, teams, etc that had the ability to be rockstars had to be carefully nurtured and protected...or they'd leave or be fired. There are only so many of these that you can nurture at once. Note this ties closely to the Innovator's Dilemma.

What is the cost? Well, (almost) all companies die eventually, or close enough to. My personal theory is that this is totally OK; milk the cow, pay dividends and let your investors invest in new companies founded by those rockstars who left. However, core innovation loss can be critical, especially in patent-driven areas, where your core advancement gets blocked.

A corollary problem is that you can't create a team of rockstars. This is a bad idea, from a process point of view. You need visionaries, executives, operators, sellers, bean-counters, etc. A team made of of just visionaries is horribly unbalanced.

Summarizing what I think is a direct answer to your question....probably $0, but in outlier cases could be fatal.

*http://www.businessinsider.com/warren-buffett-best-quotes-shareholder-letters-2014-3?op=1

adnnan mansur
Title: gm
Company: ampak energies pvt limited
(gm, ampak energies pvt limited) |

To me the most important factor is the integrity, then attitude and aptitude of a person and then the level of skill set to become star. The level of skill set can be enhanced if there is an urge to learn and implement new ideas. Loyalty with the organization is reciprocal. Transparency, judicious decisions and concern to retain the employee even in bad business patches are the most important motivational factors for employees to work an extra mile.

Keith Johnson
Title: Principal
Company: Keith E. Johnson CPA PA
(Principal, Keith E. Johnson CPA PA) |

Problem is that the employee who deserves the job the most may be not be the best one. You need to be fair. There are a lot of people who lost jobs years ago through no fault of their own and now are entitled to get it back (assuming they are trying and not playing X-Box). Those are the ones who should be hired first. First fired, first hired. Unfortunately, we're still not in an economy where we look ofr the best "fit" or " searching for the best employee" Surveys show there are scumbag employers who would rather hire someone with a job and no experience in a field but employed than someone who is qualified but is unemployed. That employer does not need to be breathing air. Pick the employee (assuming they meet the magic 80% of your job requirements) who has been out of work the longest. You will have a happy, loyal employee.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

People are a very large unknown. Regardless of all the vetting that we do, i.e. background checks, interviews, personal referrals; you will never know how the candidate will perform until the individual is in the “work environment.” Individuals become “rock-stars” when they are placed in an environment where they can excel.

We look at resumes and past performance to identify the “rock-stars,” but it is only a guess. I have seen brilliant individuals become disruptive when they feel their contributions and efforts are not appreciated.

The cost of hiring the wrong person is related to the level of the individual and the swiftness of your actions. If you realize a Middle Manager is wrong in the first three months and remove them, costs can be minimal. But if you let a bad situation continue, the cost rises.

If you wish to improve the productivity of your employees, make sure you have an environment where they want to come to work. A happy motivated employee can achieve much; while an unhappy employee is disruptive.

Employee surveys are a great way to understand the environment.

Farooq Qassam Ali
Title: G M Finance
Company: NAPA
(G M Finance , NAPA) |

I believe, practically, no organization can work with the stars; that is bound to create problems in the long run. Organizations can hire the people according to the job requirements; it is the responsibility of HR Department to identify the right person for the right job, not to identify the stars. Five fingers are not equal neither one can cook a tasty meal with only one item, for that one need combination of all ingredient according to its right proportion.

ArLyne Diamond
Title: Owner - President
Company: Diamond Associates
LinkedIn Profile
(Owner - President, Diamond Associates) |

Although i agree that the environment in which one works is important - I do believe there is tremendous value in hiring correctly. Most of the time the interviews are poorly executed and popularity becomes the decider. Yes, of course if you are hiring someone with specific technical skills, you can probably test those skills with a fair degree of accuracy.

However, many positions require skills less easily tested - in particular anyone responsible for others - or dealing with customers - or in any way involved with people.

Character, personality, ability to lead, to manage, to handle stress/conflict, and ability to fit into the culture are all important - but how are they evaluated? Subjectively?

Are the silly questions like, "what kind of animal would you be" helpful or just a way to kill time?

What is your process for hiring the best - correctly?

Jennifer Leake
Title: Certified Management Consultant (CMC)
Company: Assessment Pros LLC
(Certified Management Consultant (CMC), Assessment Pros LLC) |

Reading the great ideas and responses, it made me wonder what does the term "wrong" employee mean? Employees are wrong because:
1. They have a wrong "job fit" - they don't match the demands of the job. As I tell clients, you cannot train your way out of a bad hire.
2. They have a wrong "company" or "boss" fit - good employees matched with the wrong boss will leave. If I'm a micromanager and you hate to babysit, we need very different types of employees as bosses. People join a company and leave a boss.
3. They have a wrong "attitude" or "behavior" - Poor work ethic, a lack of honesty or integrity, hostility and anger - are just some of the counterproductive behavior that can make a hire wrong.

Clients have frequently shared (esp in sales), they love having ONE STAR but they can't handle too many as they don't have the resources to manage then. They'd prefer to hire multiple GREAT people who require less maintenance.

How do you pick a star from a so-so ... and get them to the point they produce rather than cost you money?
- Know what you are looking and train managers to be stronger and better interviewers where you evaluate candidates rather than try to sell them to join your company;
- Have an on-boarding process for a faster ramp up to productive employee;
- Create an Employee Engagement strategy to retain and develop key talent.

Everything else is a good, experienced guess with hopes it will turn out this time.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Jennifer,

Can I add one other way to get a so-so, a star, a dog or that matter any employee to produce better (again this is a really relative term and "better" may never be good enough, and that's when you take the "hit" and separate them) is an managerial environment where everyone is in "partnership" with each other and the company.

Team alignment, where if you succeed, I succeed and visa versa. This concept works best where there is an end-prize for succeeding, but need not have a definitive set amount (i.e., bonuses vs commission plan).

So if your star see's dollars in the making by taking a right turn; everyone should look at that turn, decided as a group if it makes sense and go for it.

To out of hand just to turn down the opportunity is a sure fire way to disenfranchise that star.

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