Part of being human means making mistakes. But what if one bad judgement leads to huge losses for the company? Some threads, once pulled, can unravel a whole sweater and likewise, a mis-hire can be one such thread that unravels a company.
Don’t believe us? Dr. Bradford Smart, the author of the Topgrading Method that has been used by companies such as General Electric, Honeywell, Barclays, American Heart Association and many others, has suggested that one wrong hire could cost you up to 15 times their salary.
While that looks like an immense number, you would find that it is a fairly realistic amount after crunching the numbers.
Based on Dr Smart’s book, here are some things to include in your calculations: Recruitment, Compensation, Employee Maintenance and Total Severance.
From our experience, we fully agree with Dr. Smart’s findings that a mishire can cost from 6 to 15 times a person’s base salary.
Let’s consider two scenarios, you’re the boss of a small team working out of a service office and for 2017, you’ve hired an experienced sales executive and a sales manager.
Your secretary leaves after 3 months as she is unable to fit into the company while your sales manager leaves after a year as he wants to explore another industry.
So, how much would each of these terminations actually cost? Let’s do the math.
ESTIMATED COST FOR SCENARIO 1
That’s 6 times the base salary
ESTIMATED COST FOR SCENARIO 2
That’s more than 15 times the base salary
This does not include any intangible or hard-to-quantify costs like damaged relationships with key partners or clients, ruined business opportunities, bad public image or poor reputation.
Evidently, a misjudged candidate could be more trouble than they are worth, which is why employee background screening is an important part of the recruitment process as it offers a good reference in order to properly vet a candidate based on their own history.
Interested in more articles like this one? We produce regular updates and insights at www.verityintel.com, so stay tuned for more.
Advertising and Recruitment cost:
Jobstreet (2018) Prices & Packages. Retrieved from https://www.jobstreet.com.my/en/cms/employer/price-and-packages/
Kelly Services, (2017) 2016/2017 Salary Guide. Retrieved from https://www.kellyservices.com.my/my/siteassets/malaysia—kelly-services/uploadedfiles/dev_-_kelly_services1/4-resource_center/my-salary-guide-20162017.pdf
Office workspace prices:
Vulcan Post (2017) Your Guide To (Almost) All The Co-Working Spaces In Klang Valley & Their Prices. Retrieved from https://vulcanpost.com/618672/coworking-space-comparison-rates-klang-valley-malaysia/
Severance Package calculations:
MyLabourLaw (2018) Guide To Employment Act 1955. Retrieved from http://www.mylabourlaw.net/quick-guides/7-guide-to-employment-act-1955.php#toc3