The True Cost Of (Mis)Hiring

When it comes to determining the cost of making a bad hiring decision, there is an abundance of opinions on how the cost should be calculated.  Within the last couple of months, I have seen several sets of figures, varying considerably.  Lets take a look at some examples below:

EXAMPLE 1:

Conference Board of Canada figures show that the average cost per hire is:

Executive: $43,000

Manager Professional: $17,000

Technical: $13,300

Admin/Support: $3,000

EXAMPLE 2:

The U.S. Government Study showed that the cost of mis-hiring a computer programmer was 2 to 3 times the annual compensation.

EXAMPLE 3:

In a study conducted by Dr. Bradford Smart, author of Topgrading, the cost of mis-hiring executives (average compensation: $114,000) was 24 times the person's base compensation!!!

Why such a huge difference in opinions?

Opportunity Cost.

The larger numbers typically factor in the cost of not having the right person in the job during the mis-hire period.

What is the cost of having a programmer who can deliver a new release on target launch versus one who delivers a bug-riddled product behind schedule?  Or the cost of a Division Manager who increases market share versus one who loses market share and alienates the team?

When factoring in the opportunity cost, especially for more senior roles, the "24 times salary" figure is much more credible.

THE BOTTOM LINE:

To quote former Honeywell and Allied Signal CEO, Larry Bossidy, "Every minute spent making sure you have the right person in the right job will save you weeks of time later on."

This article was written and provided by The McQuaig Institute.  For over thirty years, The McQuaig Institute has been providing companies with tools to help them get the right people on the bus - and in the right seats. If you would like to know more about three tools that will greatly improve your ability to assess candidate behaviors, values and commitment please visit www.mcquaig.com or contact Michael Gravelle at mgravelle@mcquaig.com.