The Hidden Money Pit of Bad Hires

64 percent of Millennials would rather make $40K a year at a job they love than $100K a year at a job they think is boring. ^[1]

I was shocked when I first read that statistic. Job satisfaction is important, of course, but sixty grand is a lot of money to keep from being bored. From what I know about the CVI and how important employee satisfaction is to job performance, that disparity is starting to make more sense. We'll get back to that shocking statistic in a moment, though. First, let's outline some basic business math to set the stage.

Whether it turns out to be a good or a bad hire, getting new employees in the door is expensive in dollars and time. It costs U.S. companies an average of $4,000 to fill an open position, and takes an average of 52 days to make the hiring decision ^[2]. On average, this means poring over 250 resumes to winnow it down to four to six candidates that are called in for an interview, only one of which will get the job.

Once you've made the time and money investment to get someone new, what happens when that $4K is dropped on a bad hire? Studies have shown that a disengaged employee can cost the company up to 3x their annual salary in lost productivity. Conversely, engaged employees who are the right person in the right seat can be 200% more productive.

We've assembled the stats, now let's add it all up to show how expensive a bad hire can be with an example.

We'll start with the ficticious Acme Tomato Company and discuss two imaginary project managers that work there, both with similar skills, education, and qualifications. Melanie is a project manager making $100,000 a year. Her coworker, Lisa, makes $40,000 a year. (Let's assume Melanie is a lot better at salary negotiations than Lisa.) Remember, both Melanie and Lisa have similar backgrounds and skills and are generally equally qualified.

Melanie is bored with her role at Acme Tomato. She is a skilled project manager, but her hardwired personality isn't suited to the environment at Acme and the duties she's asked to perform. She is disengaged in her role. Based on the research, this means that on top of her $100,000 annual salary:

Acme Tomato Company loses up to $300,000 in lost productivity every year because Melanie is disengaged.

Lisa loves her job at Acme. She is hardwired in such a way that makes her a perfect fit for the role within the organization. She is the right person in the right seat. Because she is 200% more productive than her disengaged counterpart, she actually adds up to $80,000 worth of value to Acme Tomato Company, exceeding her $40,000 salary.

By this point, you can likely understand the value of making a good hire in real dollars. One employee costs the company $400,000 every year while the other generates the equivalent of twice her annual salary in productivity.

Remember, Melanie and Lisa are equally qualified. The difference is how the individuals are hardwired and how they fit into the specific role within the organization. Melanie is a disengaged underperformer at Acme Tomato Company, but she might be a rock star at Johnson Produce down the road. Lisa is a rockstar at Acme but may be completely out of her element at Johnson. This example isn't about the skills and abilities of Melanie and Lisa as project managers, it's about how they fit into the specific role within each organization.

If Melanie and Lisa both came in for interviews, their qualifications, skills, education, and work history may have made them seem like equally appropriate candidates for the position, yet one will substantially outperform the other. Although Melanie's negotiation skills may mean she'd do better in sales.

How do companies determine which candidate is best for their organization when all other factors appear to be equal?

It all starts when the hiring organization works with eRep to conduct a Top Performer Profile™ or TPP for the role. This establishes the objective parameters of the position.

Candidates take the Core Values Index assessment (CVI). Their scores are matched against the TPP for the position and ranked.

It is this process of matching CVI scores against a TPP that enables your organization to put the right people into the right seats using objective data. It is efficient, accurate, and it works.

Contact eRep today and save your company a lot of money by avoiding bad hires.

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[1] https://www.inc.com/peter-economy/19-interesting-hiring-statistics-you-should-know.html

[2] Talent Acquisition Factbook 2015, Bersin by Deloitte, April 2015, http://www.prnewswire.com/news-releases/bersin-by-deloitte-us-spending-on-recruitment-rises-driven-by-increased-competition-for-critical-talent-300070986.html

Additional information:

http://deliberatepractice.com.au/wp-content/uploads/2015/09/customer-employee-engagement.pdf