Hiring decisions have an enormous impact on both the short- and long-term health of a business. Great hires bring fresh ideas and the potential for growth, and they often assume positions of key influence or leadership. Poor hires, on the other hand, can erode company morale and even create undue stress on other employees.
There are also financial implications of a bad hire. Not only must hiring managers seek out and select candidates whose skills and traits align with organizational needs, but they must also navigate the potential repercussions of a mis-hire on the company’s bottom line, team dynamics and overall morale. The hiring process demands careful evaluation, discernment and strategic decision-making at every step to ensure the right fit and a good match for the business.
In a recent webinar, three Vaco leaders discussed the financial and organizational consequences of hiring mistakes and reviewed some of the steps hiring managers can take to build a more successful hiring strategy.
Below, we have recapped some of the key points from their presentation, The Expensive Consequences of Hiring Mistakes.
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Breaking down the data: the financial impact of employee turnover
Estimates of the financial impact of employee turnover vary by source. But virtually all agree – the cost is high.
- Several studies report the average cost to replace a salaried employee is six to nine months of the employee’s annual salary.
- For technical positions, the cost rises to 100-150% of annual salary.
- For executive and C-suite-level positions, the estimates go as high as 213% of annual salary.
The hidden costs of employee turnover
Companies typically invest a significant amount of money in recruiting and hiring new team members. In fact, the average spend is around $4,000 per employee, outside of wages and salary. This amount includes the costs of advertising the position, and the cost estimates of the time it takes supervisors to interview and assess candidates and onboard and train new hires until they reach full productivity.
If an employee quits or is terminated before initial costs are recouped, the expenses are even greater; companies have to spend more time and money to hire a replacement, while existing employees take on additional work until the position gets refilled.
Bad hiring strategies can also lead to reputational damage for a business – especially within their industry. The talent pool can begin to feel quite small when there is a lot of turnover and reputational hazards floating around. If an organization is perceived to be a revolving door with significant turnover, smart, skilled talent is likely to look elsewhere when considering their next career move.
The keys to better hiring decisions
There are three key elements to reducing costly hiring mistakes:
1. Improve the hiring process
- Create realistic and inclusive job descriptions
- Offer market-based, competitive compensation
- Optimize the candidate interview process – for context, Google has a rule-of-four when it comes to the number of interviews in step
- Be responsive; waiting too long can mean losing great candidates, especially when top talent usually secure new positions within a week or two
- Reassess the skills you are requiring and ensure all are relevant and truly required
- Sell your company to the candidate – be sure to discuss opportunities for advancement, company culture, remote work (and other flexible arrangements), DEI and sustainability, the office location and other relevant information
2. Improve the candidate experience
- Attract the right candidates with well-written job descriptions
- Be transparent in your communications
- Improve your skills assessments – we recommend a candidate scorecard where a role’s requisite skills are identified and listed on a universal scorecard used by all interviewers to rate each candidate (this makes it easier for the hiring committee to compare all candidates using the same qualifiers)
- Provide clear, punctual communication at every stage of the interview process
- Focus on long-term relationships; even if a candidate isn’t right for the current role, they may be a good fit for something else that opens up in the future
3. Make the opportunity attractive to top talent
- Ask the right questions
- Demonstrate an authentic, inclusive culture
- Quicken the hiring process – remember the Google rule-of-four and if you have to include more steps in your process, make them thoughtful and strategic
- Offer flexibility and account for work-life balance; in a recent Vaco survey, 29% of job seekers indicated that their top motivator for looking for a new job was for work-life balance
- Ensure that your compensation package is competitive and reflective of the job duties and responsibilities
- Provide competitive benefits; in the same Vaco survey, 43% of job seekers indicated that better compensation and benefits were their top motivator for looking for a new job
The importance of employee retention in a tight labor market
Employee retention should be a key focus regardless of market conditions, but it’s especially important when the talent market is tight, meaning demand outweighs supply, and when economic uncertainty is influencing candidate behavior.
Here are the major benefits of workforce with strong employee retention:
- Costs are predictable. Existing employees have established salaries, bonus structures and benefits packages that are all already taken into account when it comes to budgeting. The cost of hiring a new employee fluctuates based on the length and complexity of the hiring process. These costs can quickly balloon if there are challenges around finding qualified candidates.
- Established productivity. Gallup has reported that new employees take an average of 12 months to reach their productivity potential in a new role.
- Valuable institutional knowledge. Long-time employees have a better understanding of your organization, customers and services than a new hire. That depth of knowledge can take years to build and contributes to greater efficiency and accuracy in performance.
Why do good employees leave?
According to the most recent State of the Global Workforce Report by Gallup, over half of employees surveyed said they were either actively or passively job searching.
When asked what they were looking for in their next role, better leadership, increased pay, improved well-being and opportunities for advancement were the top responses.
We found the same or similar motivators in a recent Vaco survey:
If you’re looking for a new job, what is your top motivator driving this change?
Compensation and benefits: 43%
Work/life balance: 29%
Growth opportunities: 16%
Company culture: 12%
In a poll of 400 webinar attendees, nearly one-third said their reason for leaving their job was their manager.
Poor management has long been linked to low employee engagement, increased employee stress and toxic company culture. Collectively, all of these workplace traits impact employee attrition and, when negative, can drive up recruiting and hiring costs.
The journey to reduced employee turnover (and better hiring decisions) starts with improving the hiring process itself. More strategic recruiting, better candidate assessments and effective employee retention strategies are all key pieces of the critically important talent puzzle.
Watch the full webinar on-demand.