"How do I make sure I don't hire the wrong person?" hiring managers ask me. It's a critical question. Companies lose millions of dollars on bad hiring choices each year, utilizing processes for screening and hiring talent that are largely subjective and centred, for the most part, on what the employee says about himself.
Recently, a vice president for a major hospital noted that the cost of losing a single nurse exceeded $40,000. However, it's common for companies to lose more than $150,000 per employee for senior or highly technical positions.
All of us can relate to losing yet another employee who took months to train, was extremely costly to hire, who never really succeeded and yet was the clear standout winner in the hiring process. Many hiring managers rejoice after hiring a highly technical engineer with those seemingly illusive people skills, only to find that the individual actually avoids direct conversation at every turn.
There are some critical things companies must do to stop making bad hires -- the most important of which is letting go of the notion that hiring is largely instinctive. The following steps represent major shifts away from traditional hiring practices and require nothing short of guts and a willingness to address the most unpopular subject on every manager's mind: how to stop making bad hires.
Calculate the Cost of Turnover in Your Company
Akin to reviewing your budget versus actual expenses, this can be painful. Just grit your teeth and do it. Before you can know what to spend on fixing your turnover problem, you have to know what it is costing you. After all, money talks. A senior manager's interest in hiring practices grows exponentially when he can see what making bad hires is costing the company. Here is what to calculate:
- Separation costs per incident: The inefficiency of those closely associated with the departing employee and those assisting with or making up the work.
- HR processing costs: The cost of the personnel, payroll, benefits and records associated with the employee signing on and the employee leaving.
- Inefficiency while the position is being filled: You can bet there is lots of it, and if your company has a lot of turnover, your entire organization may be desensitized to or even lackadaisical about the disruption and disorganization that often accompanies it. That inefficiency is costing you big time. This includes inefficiency caused by an open position and others completing those tasks, thereby reducing their efficiency. Calculate the average monthly salary of those affected and multiply it by the number of employees affected. The results could shock you.
- Replacement costs per incident: Preparing and placing ads and screening and interviewing candidates multiplied by the number of interviewers participating, second interviews, selection meetings and notification of accepted and rejected candidates. Average the hourly salaries of those involved.
- Employment agency fees: Per applicant, if used.
- State and federal taxes: Unemployment tax rates averages 5.4 percent depending on the state. Additional Federal Unemployment Tax averages .8 percent of the first $7,000.
- Out-of-pocket training costs: Out-of-pocket costs plus applicable portion of the trainer's salary.
- Sign-on bonuses: If applicable.
- Inefficiency of an incoming employee: Average the time lost due to a learning curve.
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.