Cost of Making the Wrong Hiring Decision
When it comes to deciding on your recruiting methods and selecting the right candidates, the amount of choices available to you is nothing short of daunting. Unfortunately, making the wrong hiring decision can cost you time and money.
In fact, according to a study conducted by the Harvard Business School, making poor hiring decisions can cost a company as much as three times an employee's annual compensation package (this includes not only base salary, but commission and bonus). But what goes into this number?
Most organizations look at their cost per hire numbers as a formula made up of both hard and soft dollars associated with recruiting a replacement.
Hard dollars are the concrete definable numbers such as the actual cost of advertising, employee referral fee, relocation, sign-on bonus and such. Soft dollars are more ambiguous and take into consideration the salary of the recruiter and hiring manager for the hours spent doing the search or the cost of overtime when current employees have to cover the workload.
If your team does a good job and you hire the right candidate, your cost per hire will probably remain low.
But what is the cost of making a poor hiring decision?
Making a poor hiring decision not only costs your organization the typical cost per hire figure, but it can also cost the company in other less tangible ways. There are productivity losses in the shape of low employee morale and extra time spent on performance management, lost business relationships and goodwill, as well as other potential costs for unemployment compensation, severance pay or even legal fees.
When you hire someone, you want it to be the right someone the first time. Imagine investing time and money to hire a new employee, only to find out they aren't right for the position and you have to do it all over again.
Making the wrong hiring decision is an expensive choice and may cost you more than you realize, but it is possible to get it done right.
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