The true cost of a bad hire

The cost of a bad hire can be substantial. According to a recent survey, around 74 percent of employers reported they had hired the wrong person for a position, and the cost of a bad hire was estimated to be around 30 percent of the employee’s first-year earnings. This cost includes expenses related to recruitment, training, severance pay, and intangible costs like lost productivity.

Arabian Business spoke to two experts to uncover the real cost of making the wrong call during recruitment.

Spotting a bad fit

According to Dubai-based career coach Noona Nafousi, the first three months are the most telling period when evaluating a new recruit. “It’s this time that really lets an employee sink their teeth into the role and get familiar with all the new processes and procedures.”

A robust induction program can prove pivotal. “It’s about ensuring the right level of training is offered, giving the new employee a fair crack at the role,” she added.

However, if after proper training, attitude rather than knowledge seems to be the issue, it should be addressed before probation ends. “This gives the employee a chance to correct any issues.”

Damaging morale and productivity

When the wrong hiring decision is made, the impact goes far beyond the individual.

“Choosing the wrong person for the job has a massive impact. It’s not just about morale; it can actually damage trust in senior management’s ability to make sound hiring decisions.”

This erosion of trust has far-reaching consequences, she warns. “There’s a knock-on effect on the retention of current staff. There’s also a tangible hit on the return on investment for the training provided and the time it takes to fill the vacancy again.”

Frequent bad hires can be especially toxic, breeding resentment among staff, as Nafousi has witnessed first-hand. “In a business I was part of, frequent new hires that didn’t stick around really soured the attitude towards incoming staff. There was a pervasive feeling of, ‘Why bother?’ since they’d likely leave anyway.”

Justin Kent, a UAE-based HR expert and Partner at Hawksby, agrees that team morale suffers most from a bad recruitment decision. “A bad hire can cause lowered team morale, lost productivity, and damage to company culture and reputation.”

Kent cautioned that the team dynamic can deteriorate rapidly when the wrong person comes on board. “The ultimate cost here is that the good people in your team leave.”

Eroding trust in leadership

Bad hires also undermine confidence in those at the top, emphasises Nafousi. “It makes everyone question whether leadership is paying attention or even cares about what the role really needs.”

This distrust is amplified if an external applicant is favoured over an internal promotion and can breed “significant resentment.”

“The best way for staff to bring this up with management is cautiously, sticking to the facts rather than letting emotions take over, as it’s likely to be a sensitive issue.”

Kent agrees failure to address a bad fit erodes staff’s faith in leadership. He advises involving team members in the hiring process to mitigate this by incorporating more team members into the hiring process to help ease doubts about management’s judgement.

Tangible costs add up

While destruction of team cohesion and culture are clearly detrimental, the tangible costs of a hiring mistake also rapidly stack up.

“The tangible costs like recruitment fee, training, salary, and benefits are easy to spot,” said Kent. Although the intangible costs often do greater damage.

Hiring mistakes can have significant financial implications for businesses. According to a survey, 17 percent of small businesses said a bad hire cost them between $1,000 and $2,500, while 20 percent reported costs between $2,500 and $5,000, and 11 percent stated costs between $5,000 and $10,000.

“The old saying of ‘time is money’ is important to remember,” said Kent.

Prolonging the situation

Both experts emphasised the need to address problems promptly, especially during probation.

“The first three months are critical. This is typically the probation period, and it’s the best time for feedback,” said Nafousi.

For senior roles, it’s worth investing in training and coaching from the outset. She believes that this ensures the new hire is not only equipped with job-specific skills, but also with a good grasp of the company culture, market, and competitors.

According to Kent, 30-, 60-, and 90-day reviews can provide formal opportunities for employers and employees to connect. “Ongoing observation is fundamental,” he stressed.

If you sense early on that the candidate is not right for the role, you must make a decision, he said. “If you don’t, the problem will fester and become much harder to broach as time goes on. Be fair to you and your employee.”

“Remember, struggling employees take up a great deal of management time often at the expense of star employees who could feel ‘unloved,'” he explained.

But this begs the question: when is it worth investing in a bad hire’s training?

“Time is a cost,” Kent said. However, if the employee has the right attitude, it may be worth your while to invest in their training.

“Prioritise attitude. Skills are essential, yes, but changing someone’s fundamental attitude is much harder,” said Nafousi.

Avoiding bad hires

What can companies do to avoid making the wrong choice during recruitment in the first place?

Nafousi cautioned against “hiring out of desperation, settling for someone less than ideal because of an urgent need to fill the role.” Robust succession planning is key to avoiding this pitfall.

She also warns that “a weak onboarding process” is another major pitfall.

“Even the best candidate will struggle if they’re not properly integrated into the team.”

But cultural fit should not be ignored either. “This is a huge mistake I see time and again,” she said.

Kent advises looking out for red flags like inconsistencies in a CV, frequent job changes, and vagueness during interviews. Follow your instincts, he says, and seriously vet references. “This provides the best piece of real-life context you can get about your future employee.”