The rising costs of a bad hire

New independent research by specialised recruiter, Robert Half, reveals that almost nine-in-ten (86%) surveyed Australian business leaders believe the negative impact of a bad hire is more severe today than it was a year ago.

  • 86% of Australian business leaders agree that the negative impact of a bad hire is more severe today than it was a year ago.
  • The average cost of a bad hire can be between 15%-21% of that employee’s salary, depending on seniority.
  • The top reasons for making a hiring mistake include focusing too much on a candidate’s potential match with company culture at the expense of technical skills (38%) and over-emphasising technical skills at the expense of soft skills (35%).

Sydney, 02 August 2021 – As companies pursue ambitious growth agendas and the competition for skilled talent intensifies, organisations cannot afford to take a misstep in their talent strategy. New independent research by specialised recruiter, Robert Half, reveals that almost nine-in-ten (86%) surveyed Australian business leaders believe the negative impact of a bad hire is more severe today than it was a year ago.

Amongst respondents, the severity of a bad hire varies by department and business size. While three-quarters (75%) of large organisations (500+ headcount) believe the cost of a bad hire is more severe today, this rises to 91% amongst SMEs. A higher proportion of CIOs (90%) believe the cost of a bad hire is more severe today than CFOs (83%).

The actual cost of a bad hire

The research by Robert Half finds that a bad hire can cost an employer between 15%-21% of that employee’s salary, with the extent of the impact depending on the industry and seniority of the role. The impact of a bad-hire amongst technology professionals is felt more acutely than other sectors, with a bad Director-level tech hire costing up to nearly a quarter more than their initial salary.

An employee who does not fulfil their job description can have negative bottom line impact due to lost revenue or lost productivity. Beyond the immediate costs, a bad hire can cause an expensive ripple effect throughout an organisation from wasting time hiring and training the recruit, to decreasing morale and productivity among impacted teams, and increasing stress on supervisors and managers.

How much does an underperforming employee cost your team based on lost revenue, lost productivity, and additional performance management and training resources (as a percentage of the role's salary)?

  Total CFOs CIOs
Staff-Level 15% 13% 14%
Management-Level 18% 18% 20%
Director-Level 21% 21% 24%

Source: Independent survey commissioned by Robert Half among 300 hiring managers, including 100 CIOs and 100 CFOs.

Explaining why the cost of a bad hire is more severe today than prior to the pandemic, Robert Half Director Nicole Gorton says “During periods of change and uncertainty, the cost of a bad hire is magnified. Firstly, businesses are prioritising growth and recovery initiatives, often without fully rebuilding their staff headcount to pre-pandemic levels, so corporate resources are spread thin. This is resulting in less of a ‘buffer’ between underperforming employees and their impact on the business – particularly in smaller organisations.”

“Secondly, employee morale took a hit in the past year across many businesses - colleagues were laid off, excess workloads were redistributed, salaries and bonuses were impacted, opportunities for holiday and leave have been limited - so a new employee who may not be pulling their weight can have an exacerbated impact on already fragile staff morale and productivity.”

“Finally, a bad hire represents squandered hiring and training efforts which will ultimately need to be duplicated on the replacement hire. This is made all the more difficult as the competition for talent intensifies and the available talent pool further reduces,” Gorton concludes.

Factors leading to a bad hire

Fundamental failures within the hiring process are cited as the most common causes of making a bad hire according to the Australian employers surveyed.

Pointing to the fact that there is not a single perfect recruitment formula, almost four-in-ten (38%) employers cited that focussing too much on a candidate’s potential match with company culture at the expense of technical skills was the top reason for making a bad hire. This was closely followed by those who cited almost the opposite, being overemphasising technical skills at the expense of soft skills (35%). As two-sides of the same coin, these results point to the need for businesses to have a clear understanding of ‘must have’ and ‘nice to have requirements’ for the role, as well as take a holistic and balanced approach to recruiting where they sufficiently assess both technical and soft skills.

Other pain points within the hiring process include inadequate reference/background checks (27%), skills not matching the needs of the position (27%) and losing the best candidates because the hiring process is too long (27%).

Nicole Gorton says: “Companies have experienced a few major changes over the past year, from the shift to remote working to completely reinventing the way they recruit and onboard new employees. With so much change and adjustment in a short space of time, the chances of making erroneous decisions are significantly higher.”

“The common hiring mistakes like poor skills alignment can be prevented by ensuring there is an effective candidate evaluation process in place which is consistently implemented across the board. Beyond the search and selection process, hiring managers must work closely and efficiently with other stakeholders in the decision-making process to speed up or eliminate time-consuming steps which could cause companies to lose out on securing the best match,” Gorton concludes.

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