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Lessons Learned

Why Companies Make Bad Hires

A new study reveals that 95% of companies admit to recruiting the wrong people each year. Here's how to avoid making their mistakes.

[Photo: Flickr user Jason Hickey]

There are a lot of strategies around how to hire the right people, from analyzing Google searches to diversity initiatives to personal philosophies set into interview practices.

Yet, despite best practices and concerted efforts, as many as 95% of companies admit to recruiting the wrong people each year, according to research commissioned by Glassdoor from management consultancy the Brandon Hall Group. What’s more, over a third of organizations reported being unaware of how costly that mistake can be.

The study was comprised of five phases of research, drawn from formal and informal surveys taken from executives and a range of human resource professionals, qualitative interviews, analysis of academic research and emerging trends, and market testing. The resulting report reveals a fuller picture of the cost of a bad hire. While most organizations reported they knew that fees for advertisements and recruiters, combined with the cost of technology and the interview process itself can range from nearly $750 for an entry level hire to almost $3,800 for an executive placement, that’s just the beginning of the cost, the researchers found.

In addition to that, organizations have to factor in salary and training time, as well as fees for unemployment. Then there are the less concrete factors of loss of business opportunities or clients from the disruption, and a reduction in team morale.

"Today, the cost of a bad hire is much less of a recruitment metric and much more of a business metric," the researchers write. While it is true that there are too many variables to come up with a set dollar figure for the loss of any one position, according to a study by the Society for Human Resources Management (SHRM), it could cost up to five times the amount of a bad hire’s annual salary. And the higher the person’s position and the longer their tenure, the more it will cost to replace them. The report also found that "bad fit" hires have an impact on four distinct parts of their companies:

  • Productivity
  • Retention
  • Performance
  • Culture

In the performance category, a 2014 study by Brandon Hall Group found that 72% of companies found a link between team dynamics with improved productivity, and 68% of companies found that had a positive effect on engagement.

It Starts With the First Question

When the results of making a good hire impact the business in such a positive way, shouldn’t it be simple to identify what not to do to recruit the wrong candidate? The report indicates that the missteps begin right at the interview stage. Sixty-nine percent of companies surveyed pointed to a flawed interview process as having the biggest impact on the quality of the hire. Companies lacking a standard interview process are five times as likely to make a bad hire.

In addition to lack of a standard protocol for interviews, the researchers found that hiring managers make mistakes by asking the wrong questions, don’t articulate the company culture or the job requirements, and don't evaluate the interview.

Assess, Early and Often

Only 5% of organizations evaluate candidates during the sourcing/screening process, the researchers found. Usually assessments occur after onboarding. Half of the businesses surveyed said that they assessed candidates during that time, while 32% said that they evaluated applicants during the interview process, and 5% that did it during screening or while extending an offer letter.

Assessments should take into account the candidate’s soft skills rather than simply making sure the person can check all the pre-requisite experience required in the job description. Does that person demonstrate behaviors that align with the company’s culture? If so, that person is a quality hire, which survey respondents reported was more critical than retention or engagement.

Branding Helps

The researchers discovered that making an investment in branding increases the likelihood of making better hires threefold. That means paying attention to the management, communication, and evaluation of the company’s brand to reflect a positive image and reputation.

Candidates are shoppers, too. They are looking for a job at a firm they can feel good about working for. They’ll be able to size up a company based on the language used in job postings, as well as reviews by former and current employees.

Even those who don’t make the cut need to be treated appropriately as the researchers found that organizations that invest in the candidate experience reported the quality of hires improved by over 70%. The experience includes every point of interaction between the company and the candidate.

For example, an engaging presence on a talent community such as a LinkedIn group is a low-pressure way for potential applicants to learn about company culture and interact with peers and existing employees. It also includes social and mobile recruitment strategies, the latter as simple as offering an easy user interface for the candidate to apply for a job via their phone.

Onboard Appropriately

Once a person is hired, it’s not enough to just show them a desk and give them a to-do list. The study found that companies with a strong onboarding process improve new hire retention by 82% and reported a more than 70% increase in productivity. "Onboarding should not be viewed as a one-week orientation but rather a year-long program that helps new hires feel acclimated and motivated to perform," they write.

Mentors and coaches help a new employee get a feel for what is expected and offer assistance to meet those goals. Social programs—not just the quick tour around the office saying hello to a dozen or more coworkers—that are designed to help the newbie network within the organization can also help boost a company's chances of retaining the right person.

If technology is available to smooth the transition, use it, the researchers found. The most effective onboarding programs skipped long sessions in a classroom setting and used advanced learning tools to enable success on-demand. "These companies are 300% more satisfied than their lower-performing peers with the technology they’re using to support their onboarding programs, which correlates with significant gains achieved in time-to-proficiency and new hire retention," the researchers report.

The Upshot

As the number of ways to recruit and retain talented employees grows, it’s important to keep in mind a cautionary tale from the bastion of company culture, Zappos. Founder Tony Hsieh baked in core values from the beginning (delivering happiness subsequently became a book and a spin-off consultancy), but even he admitted to making bad hires. Over the course of the company’s history, Hsieh estimates recruiting the wrong people cost over $100 million.

His antidote: slow down the hiring process (see aforementioned points) and offer people $2,000 to leave after the first week of training. "Really, the goal of that originally was to weed out the people that are just there for a paycheck," Hsieh rationalized.

Related: Are You Hiring Smart?

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