The Ramifications of a Bad Hire

Many of our clients admit to making poor hires each year.  What does this mean for a company, especially when the appointee is sitting in the c-suite making decisions that directly affect the bottom line?

The full cost incurred from a bad hire includes recruitment or executive search,   training, lost business opportunities, reduction in team morale and loss of investor confidence. As rigorous as most companies are when it comes to making hires, even the successful aren’t immune. Zappo’s CEO, Tony Hsieh estimated that his own poor appointments have cost the company in excess of $100 million.A hasty decision is often is often the reason for an unsuccessful hire. On average the cost of replacing an employee is two and a half times the individual’s remuneration which comes straight off the bottom line and when we are talking C suite, the numbers climb. Many soft factors come in to play which are hard to measure:

1.     Productivity

2.     Retention

3.     Performance

4.     Culture

We should add that if a business is responsive enough to recover quickly from a hiring mistake, they may even turn it around to positively influence the company. A poor hire may expose and highlight weaknesses in products, people or structures.  A failed appointment can point to a weak executive support structure or poor on-boarding programmes whilst draining existing resources.

One of the greatest costs of a poor hire is termination and rehiring. If reasonable, re-assigning the individual or downgrading the role to train the individual in their areas of weakness would be first prize.  That’s of course, if there is agreement.  A further possibility is to invest in executive coaching. While this remains an extra cost, it is certainly the more economically sound solution. Should a re-hire be unavoidable, take the time to properly consider the next candidate – establish non-negotiable requirements and stick to them unwaveringly.

It is at this stage that a search firm is often retained.   The risk of making a critical hire is lowered by using a firm with a strong track record, wide reach, appropriate verification procedures and perhaps even on-boarding programmes that increase the chance of success.