"Hey! - I Want My $200,000 Back!" The Impact of Poor Hiring DecisionsChris Young
September 29, 2008 — 2,031 views
Big question - How much does it really cost you and your company when you hire the wrong person?
Recently, during a "talent fit" review with a Client, I shared the evidence of the value being "destroyed" by a particular low performer on his team. I said, "The real cost of keeping this particular low performer is well over $200k in profitability a year."
His response was immediate: "I never thought about it that way..." He quickly added, "I want my $200k back!"
My Client would love to go back and change his hiring decision.
It was not that my Client did not recognize this particular team member was destroying value for his team and company. He did not fully realize the severity of his hiring mistake. He had no idea how bad the damage really was.
He now knows and is making the appropriate changes.
This particular employee team member was hired prior to the creation of a job benchmark for the position. When we used a personality profile test to measure this low performer's Job Fit, we scientifically matched the data to the reality. My Client has a Job Mismatch Problem.
Consider for a moment... When you think of the cost of a poor hiring decision, what costs do you focus on?
What does it really cost when you make a hiring mistake?
Chances are the real cost of hiring the wrong person is a LOT higher than you think.
Bigger question.... Do you know who your top 20 percent high performers are? More importantly.... How about your bottom 20 percent low performers?
Clearly your wrong hires are represented by your bottom 20 low performers. Your bottom 20 low performers are your Job Mismatch Problem.
Stop. If you are saying to yourself, "I do not know who my bottom 20 percent low performers are?" - you are in trouble.
May Day... May Day... May Day...
Stop everything you are doing. Stop reading this post. Get your list of "to do items" out. Write down the numbers 1-10 ahead of every other item on your list. In each location - write down "Score card my performers".
Make it a PRIORITY to understand who your bottom 20 low performers are. Quickly help these people "Climb" to the next level of performance or move them out of your team. "Camping" and "Quitting" while staying on your team should NEVER be an option.
Whether you are hiring a sales person or an accountant, the cost of hiring the wrong person for the job can be incredibly high. The problem is the traditional "cost of hiring focus" is on the "turnover costs" of hiring the wrong person.
While turnover costs are certainly important to consider - I find that the turnover costs associated with the hiring and orientation processes PALE in comparison to the lost opportunity associated with hiring a low performer.
This lost opportunity is what I call the "Employee Selection Possibility Gap". This gap is created when the wrong person for the job is hired. I also call it your "Job Mismatch Problem" - because it is your problem to deal with. The "Possibility Gap" is the gap between what is and what could be.
Consider for a moment...
How do you know if you have hired the wrong person?
What are the signs of a poor hiring decision in your team and organization?
In some professional fields, the costs become obvious quickly. Hire the wrong sales person and the Job Mismatch Problem is reduced sales compared to what "should be". In other professional fields, the cost of hiring the wrong employee team member is "hidden" in the cost of angry Customers who quietly do not return. Another hidden (yet significant) cost of hiring the wrong person is lower productivity and low employee morale.
A particularly excellent example of the cost of hiring the wrong person is demonstrated when a company hires the wrong sales person. Relatively objective data tied to a sales performance is generally available in a given company. In the "sales world", we have a rich opportunity to measure the costs of hiring the wrong person.
As a starting point, I will not focus on the traditional cost of hiring the wrong sales person. The traditional focus is on the sales person not working out and then a new one needs to be hired and trained to replace the poor hire decision. On top of that is the traditional search and training costs. While these costs add up, they are NOTHING compared to the lost productivity associated with hiring the wrong person.
We recently reviewed a company's current inside sales force of 110 sales people. We found that the average "top 20 percent high performer" produced $200,000 in annual profit for the company. The "bottom 20 percent low performers" produced less than $20,000 in annual profit.
The middle 60 percent contributed $80,000 per year in profit per employee team member in this broad category.
To be fair... All of these sales people had been with the company for at least 12 months and did the same thing - inside sales. Therefore, we can safely assume that each sales person has had the same "opportunity" to excel in front of them and simply do not fit the job.
Therefore, we may draw several conclusions with regard to this particular company...
The top 20 percent high performers (on average) contribute 10 times the profitability relative to the bottom 20 percent low performers.
The middle 60 percent contributed 4 times the profitability relative to the bottom 20 percent low performers.
If one were to only focus on avoiding the hiring of the bottom 20 percent, we could assume profitability would increase four-fold.
How much are your bottom 20 percent low performers costing you?
What can you do differently to avoid selecting low performers in the first place?
1. Benchmark the Job to find out what it really takes to be successful - this does not mean trying to hire an exact replica of a particular top performer - he/she could be a high performer poser.
2. Use a strong pre-employment personality profile system to compare candidates to your Job Benchmark.
3. Compare existing employee team members to the Job Benchmark.
4. Create personalized employee coaching plans based on individual levels of Job Fit.
Interested in knowing more? Send me an email and I will send you an easy-to-use calculation spreadsheet to visualized team member performance.
Now go Maximize Possibility!
Chris Young helps organizations Maximize Possibility through talent management, cultural transformation, and strategic intervention.
The Rainmaker Group is a human talent maximization company specializing in helping organization maximize their bottom lines by improving employee retention, hiring the best talent possible, and strategic talent management and coaching services. From the Fortune 50 corporation to the small medical office, The Rainmaker Group guarantees lasting organizational change via a unique blend of energy, insight, and science to maximize talent, transform organizational culture, and provide strategic intervention.