The REAL Cost of A Bad Hire
Low to High Costs vs. Salary
LOWEST ESTIMATED COST
- American Management Association estimates one point four (1.4) times the employee's annual salary.
- DDI Consulting of Bridgeville determined the cost is dependent on the employee's duties. It will cost a minimum of one to two times annual earnings at the lower level positions, but will skyrocket from there.5
MID ESTIMATED COST
- An Orange County California study concludes it is between three and five times the annual salary of the former employee.6
- Robert McCord, president of McCord Communications in Redmond, estimates it cost his company seven and one-half (7½) times the annual salary of a biotech lab senior manager to replace him.7
HIGHEST ESTIMATED COST
Dr. John Sullivan, the executive director of the California Strategic Human Resources Partnership (a consortium of 'Fortune 500' executives), calculated the cost for a "bad hire" of a software engineer at over one million dollars, which is in excess of ten times his annual earnings.
Dr. Sullivan sited another situation at a US modem manufacture where hiring the wrong CEO cost the company one hundred million dollars per month in lost market share.
Facts
Productivity of remaining employees declines when an employee leaves. Studies indicate that no matter what the reason for departure, after an employee is terminated, the remaining employees' productivity declines.1
The real costs associated with hiring and replacing employees are often times hidden. The "Chapman Study" indicates a lack of understanding of the real cost associated with hiring and replacing employees. Most employers expect this cost to be less than the annual salary of the replaced employee. Often times only the direct cost is considered (and some of those are omitted), while the hidden cost is completely forgotten.2
Personality profiling increases accuracy of a successful hire to 53% - job profiling even higher. Studies by John Hunter, Ph.D., at Michigan State University, show that the interview process is only 14% accurate in predicting a successful hire, that background and reference checking has a 26% accuracy, that aptitude and personality profiling has a 53% accuracy, and that job profiling increases the accuracy to 75%.3
Nearly 80% of job turnover is due to hiring mistakes. A Harvard University study concludes that nearly 80% of turnover is due to mistakes made in hiring.4
Fact
One bad hire far exceeds the cost of using the RightPathing system.
Bibliography
Book - Smart Staffing by Wayne Outlaw, published by Upstart Publishing-1998
Newsletter- ADSI, ACCUFAX News article "Hiring & Firing Cost Challenge Employers," July 1998 issue
Magazine- Human Resources Magazine article "Employee Testing Gives Employers the Hiring Edge," by Maryanne Preston, March 1997
Newsletter- Drake Bean Morin, Inc.March 1, 1999 news article "How Much Did that Last Bad Hire Cost You?" By Linda Neville
Magazine- Executive Report Magazine volume 13, article "Get It Right the First Time" by Jane A. Black & Kristin Giron, November 1994
Newsletter- ADSI, ACCUFAX News article "Hiring & Firing Cost Challenge Employers," July 1998 issue
Publication- Puget Sound Business Journal article "Hiring Practices" by Robert McCord, September 22, 1997 issue
Magazine- Network World Magazine volume 14, article "The Real Cost of A Bad Hire," by Loretta Prencipe, September 1, 1997
