Got an extra $1.5M lying around?
According to Geoff Smart and Randy Street in their best selling business book Who, the average hiring mistake costs 15x an employee’s base salary in hard costs and productivity loss. So the cost of a single employee making $100,000 a year leaving your company with or without cause has a significant impact on the company’s bottom line. While no company has complete control over who will stay and who will go, the best way to protect against these losses are to ensure you are hiring the right people, the first time.
No one is immune to poor hiring decisions. Even the most progressive businesses make hiring mistakes. Zappos’ CEO Tony Hseih began paying unhappy employees $2,000 to leave the company because hiring mistakes have cost him more than $100M. He recognized that paying employees who were not fully committed after two weeks in the role was actually more cost-effective than allowing a more natural process to weed them out over a longer period of time.
The Economist called unsuccessful hiring “the single biggest problem in business.” And leadership-hiring mistakes happen more often than you might think. In the US, the typical hiring success rate of managers is only about 50%, according to Peter Drucker and other researchers.
When only 50% of your leadership hires work out, the costs to your bottom line can be astronomical.
How is that possible? As Smart and Street spelled out in Who, costly hiring mistakes are made when business leaders:
* Are unclear about what’s needed in a job
* Have a weak candidate pool from which they can choose
* Don’t know how to pick out the right candidate from a group of similar candidates
* Lose candidates they really want to join their team
First let’s dissect how that single $100,000 employee’s $1.5M can add up:
A global study of 6,000 HR leaders by CareerBuilder explored the direct and indirect costs of hiring the wrong employee. The study’s participants cited the following wrong hiring costs to their businesses:
* 41% lost worker productivity
* 40% lost time due to recruiting and training another worker
* 37% expense recruiting and training another worker
* 36% negative impact on employee morale
* 22% negative impact on client solutions
To underscore the costs of lost productivity:
A survey of CFOs reported that supervisors spend 17% of their time (almost one day a week!) overseeing poorly performing employees. We’ve all been there, and realize that lost productivity is a black hole that affects the entire leadership team, employees, customers and shareholders.
To better understand the lost time due to recruiting someone else:
According to Glassdoor’s Economic Research team, the average time it takes to interview in Portland is 25.3 days, and in Seattle is 25.0 days.
That’s an average for interviewing candidates from franchise workers (shortest time) to government workers (longest time); and Portland and Seattle take the second- and third-longest times in the national study. Believe it or not, we’re ahead of fourth-place San Francisco, and behind only Washington, DC!
Add to the interview time – especially for business executive candidates – the time it takes to negotiate, to wait for the candidate to wrap up their obligations and come aboard, and the time to successful onboarding (not even productivity) can literally take months, unaided.
(At Herd Freed Hartz, we track quality and speed in our average “Time to Candidate” metric of 37 days. This is our average number of days from search kickoff to when the winning candidate was presented.)
To underscore costs to employee morale:
A high stress environment or an environment in which employees are disengaged can cause a loss of employee productivity. A bad hire often causes both stress (to the poor hire and/or others) and disengagement (of the poor hire and/or others).
The American Psychological Association, in their Annual Stress in America survey, estimates that more than $500 billion is siphoned off from the U.S. economy because of workplace stress, and 550 million workdays are lost each year due to stress on the job.
Studies from the Queens School of Business and the Gallup Organization found that disengaged workers had 37% higher absenteeism, 49% more accidents, and 60% more errors and defects than workers who were engaged.
Enough Bad News! How Do We Hire More Effectively?
In short, business leaders must take a more disciplined approach to sourcing and interviewing all candidates – especially executives.
In HBR’s Definitive Guide to Hiring in Good Times and Bad, they noted:
“A company can increase its yearly profits and market value by about a third through the disciplined generation and assessment of candidates for a CEO position. The typical cost of a search… is negligible when compared with the expected return on investment in candidate assessment.
Even for a company with a market value of $100 million—a 10% improvement in the quality of candidate assessments would have an expected return of almost $2 million in additional profits per year and mean an increase in market value of $30 million to $40 million.”
What are the attributes of “disciplined generation and assessments of candidates?” At Herd Freed Hartz, we take a programmatic approach with our clients, layering art and science on top of strategy:
* Strategy: Have a written plan to achieve your hiring goals
* Science: Leverage technology tools for efficiency and scale
* Art: Craft inspirational storytelling and candidate experience to ensure your company stands out from the pack
Successful Strategy: Building Your Plan and Goals
A written plan accomplishes several critical things: focusing your search; setting expectations for HR, your recruiting partner and the candidates themselves; and supporting the interview team as candidates come through.
First, defining the specific demands the job will require will help you screen for candidates more quickly, and help potential candidates understand your expectations from the very beginning.
Specifying the relevant skills and experience for the position will speed time to a strong candidate pool, and guide the interview team.
Identifying the team the candidate will need to work with – across and beyond your organization – will help build consensus among constituents as to job and candidate requirements.
And defining the way culture and context will affect the role (not the person) will elevate your hiring process beyond decision-making based on subjective, personal preferences
Science: Tools and Technology Speed Results
LinkedIn is still the biggest platform for recruiters, and recent studies have shown that 87% of professionals on LinkedIn are open to speaking with a recruiter. You might explore other social aggregation tools – like TalentHook, Gild and Hiring Solved – to more quickly find candidates through search. The Society for Human Resource Management (SHRM) research shows that HR professionals are leveraging social media to tap into the talent pool and to promote their organizations’ brand, culture and benefits offerings to attract and retain new leaders.
Building a great employer brand online – especially through social media – can help even the most passive candidates consider a career opportunity. Your website is your foundation for success, but increasingly potential candidates are turning to social media and LinkedIn (and other professional networking sites) to gather brand impressions.
Art: Inspirational Storytelling, Candidate Experiences Set You Apart
And finally, the art of recruiting and hiring leaders for great fit is the area that has the potential for the very best ROI in the successful hiring process. The art of executive recruiting is measured, inspiring and strategic.
The art of executive recruiting is:
* Adding just the right sizzle to the job description to make it so compelling, even passive candidates will consider a switch.
* Creating a seamless candidate experience so that every single candidate will walk away with a positive impression of your company.
* Helping everyone in your organization become a great brand advocate – everyone in your business should be a recruiter.
* Boosting your interview team’s skills, to focus on rational vs. emotional decisions
* Using epic storytelling techniques to set candidates and your eventual hire up for success in their first year on the job.
How does your business measure up?
We hope that illuminating the true costs of a bad hire and how to better prepare your organization for hiring success will help your organization to protect your bottom line and prepare for growth in a positive way.
An executive search partner can make the search process almost seamless for your leadership team, your candidates and your employees. And a retained search firm can often accelerate your search to a successful hire.
About Herd Freed Hartz
Herd Freed Hartz is the premier executive search firm in the Northwest, with offices in Portland and Seattle. At Herd Freed Hartz, we listen to understand your story. We do a deep dive on your business, the role you’re trying to fill, and help identify the key outcomes to target the ideal candidate. And we’ve successful placed executives in more than 150 businesses around the Northwest – from Zoom+ to Starbucks to REI to Les Schwab Tires.
We know you can’t find a cultural fit through keyword research. We know how to look beyond the resume to find the right candidates for your business. And we take responsibility to represent your brand extremely well in the marketplace. We help you stand out from your competition, to attract the best prospective candidates, and ensure a great candidate experience throughout the time you connect with them.
We can quickly deliver executive talent to help you win. And as our team delivers great results to your business, we want to earn the right to be your long-term, trusted recruiting partner.
We get the Northwest. We get the importance of personality and cultural fit on both sides of the aisle.
We’d like to help you build a great executive team.
Connect with us – in Portland – 503-535-0713 or Seattle – 206-525-9700.