R3 million: the true cost of a bad hire

Annelize van Rensburg

The options are internal promotion (a separate subject) or DIY executive recruitment (supposedly a cost-effective way forward).

Companies that launch their own search can be quite triumphalist when they identify an apparently suitable candidate. The attitude is often: "See, we can do it ourselves, and it's cheaper!" But is it? And are we really discussing top talent or the best among those who replied to the ad? Those who respond are available because they are in-between jobs or because the position represents a step up and they are testing the waters.

Top talent already has a top job. They are not 'on the market', they are hidden within the market, and a good executive search company will search them out and actively 'sell' the challenges and opportunities represented by the new position.

Risky DIY search

Two principal risks attach to the DIY search. The first is that the candidate is adequate but mediocre. He does enough to get by. Strategic opportunities are missed. The company drifts. This may last years, making the cost of mediocre hires incalculable.

The second risk is the bad hire. Costs are easier to judge and may run to R2 million or R3 million, depending on business size.

The cost of another recruitment exercise - professionally conducted this time - is the first cost. Add to that the cost of wasted executive time. Often, a very senior team handles the induction and invests time and effort, giving the newcomer every assistance while settling in. This senior time commitment may last three months, perhaps longer. Lost opportunity costs compound matters.

Losses pile up. Profits fail to grow. Further contraction in market share may be evident. New competitors emerge, encouraged by continued drift. New strategies and product launches stall because the 'top performer' hesitates. It normally takes three months for the 'bad hire' to become clear. Under-performance continues for several more months while performance management processes prepare the way for a merciful exit.

One-year guarantee

The executive search professional is incentivised to avoid scenarios like this. Typically, a one-year guarantee attaches to every hire. If the candidate fails to make the grade in this time, a replacement must be found at the search company's cost.

Another scenario involves the hire who seems to cope, but quits after a few months. He was looking for new opportunities when the position was offered. Several irons were in the fire, but the DIY recruiter made the first firm offer. Then a better package came along and the candidate resigned.

The search process is back to square one. Time and money have been wasted. What's more, the company must now cope with reputational damage and staff demotivation.

The professional avoids this type of misstep through single-minded focus on the best talent, exhaustive interviews and rigorous background checks. Again, the one-year guarantee incentivises stringent measures to avoid the job-hopper.

You pay a price for hires that go awry. Up to R3 million is my assessment and this might be conservative. Seen in this light, DIY savings are no bargain.