Staffing: How to Stop Making Hiring Mistakes

“How do I make sure I don’t hire the wrong person?” hiring managers ask me. It’s a critical question. Companies lose millions of dollars on bad hiring choices each year, utilizing processes for screening and hiring talent that are largely subjective and centered, for the most part, on what the employee says about himself.

Recently, a vice president for a major Midwest hospital noted that the cost of losing a single nurse exceeded $40,000. However, it’s common for companies to lose more than $150,000 per employee for senior or highly technical positions.

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All of us can relate to losing yet another employee who took months to train, was extremely costly to hire, who never really succeeded and yet was the clear standout winner in the hiring process. Many hiring managers rejoice after hiring a highly technical engineer with those seemingly illusive people skills, only to find that the individual actually avoids direct conversation at every turn.

There are some critical things companies must do to stop making bad hires—the most important of which is letting go of the notion that hiring is largely instinctive. The following steps represent major shifts away from traditional hiring practices and require nothing short of guts and a willingness to address the most unpopular subject on every manager’s mind: how to stop making bad hires.

Calculate the Cost of Turnover in Your Company

Akin to reviewing your budget versus actual expenses, this can be painful. Just grit your teeth and do it. Before you can know what to spend on fixing your turnover problem, you have to know what it is costing you. After all, money talks. A senior manager’s interest in hiring practices grows exponentially when he can see what making bad hires is costing the company. Here is what to calculate:

• Separation costs per incident: The inefficiency of those closely associated with the departing employee and those assisting with or making up the work.
• HR processing costs: The cost of the personnel, payroll, benefits and records associated with the employee signing on and the employee leaving.
• Inefficiency while the position is being filled: You can bet there is lots of it, and if your company has a lot of turnover, your entire organization may be desensitized to or even lackadaisical about the disruption and disorganization that often accompanies it. That inefficiency is costing you big time. This includes inefficiency caused by an open position and others completing those tasks, thereby reducing their efficiency.Calculate the average monthly salary of those affected and multiply it by the number of employees affected. The results could shock you.
• Replacement costs per incident: Preparing and placing ads and screening and interviewing candidates multiplied by the number of interviewers participating, second interviews, selection meetings and notification of accepted and rejected candidates. Average the hourly salaries of those involved.
• Employment agency fees: Per applicant, if used.
• State and federal taxes: Unemployment tax rates averages 5.4 percent depending on the state. Additional Federal Unemployment Tax averages .8 percent of the first $7,000.
• Out-of-pocket training costs: Out-of-pocket costs plus applicable portion of the trainer’s salary.
• Sign-on bonuses: If applicable.
• Inefficiency of an incoming employee: Average the time lost due to a learning curve.

Total all this and you have the average cost of turnover or making a bad hire.

Stop Exclusively Using Self-Report Assessment Activities

Consider the average job applicant who submits a résumé and gets interviewed: The process requires the applicant to put on his best face and say the right things. Applicants are often asked to complete self-report assessments that ask questions about how he perceives himself or how he is likely to behave. How is it possible to get unbiased answers? Consider this: A hiring manager wants to know certain facts about a candidate. Some of this data might include attitude toward others, sensitivity to others, ability to be results oriented and persistent and willingness to do things “right,” to name just a few. Consider also that the candidate wants the job he is applying for. If this was you, how would you rate yourself in these areas?

It is critical to use scientific, objective and non-self-reported assessments that don’t ask questions of the applicant and don’t have them describe themselves in any way to avoid biased results. Hiring managers also need to make sure they are assessing the right things. Who cares if someone likes to be with others at a party or says they like people? Have you ever met anyone who admitted to not liking people? Instead, use a non-self-reported assessment to judge someone’s competency and how they make decisions—this is what impacts your business.

Benchmark Your Talent

Benchmarking critical positions is rapidly becoming a best practice. Hiring managers want to know three things when they hire an employee: Can they perform the job? Will they perform the job? Will they perform the job for us in our unique culture? Currently, a global statistical model for measuring performance potential does not exist. We also know that success in one performance environment does not guarantee success in any other environment. Each organization has a unique, dynamic combination of elements that requires customized data gathering and measurement methodology to consistently measure success and identify failure.

A successful talent benchmarking process defines and aligns the functions, responsibilities and requirements for performance of a particular job or position in an organization’s specific work environment to an individual’s ability to function successfully in that environment. It isn’t an easy undertaking but when done scientifically, however, the resulting data can be used to screen out bad hires and save organizations millions of dollars.

Some essential steps in benchmarking include:

• Establishing a standard of measure. It is important to choose a standard of measurement that is reliable, mathematical and objective.
• Identifying the relevant performance factors that expose the differences between individuals who are performing successfully and those who are not. Many hiring managers want to clone their best people. Instead, it is essential to identify those characteristics that differentiate the two groups of performers.
• Translating relevant performance factors into a risk system that can be quickly and reliably used to identify performance potential. Doing this allows an organization to screen for people who don’t have the differentiating characteristics that define success in that specific environment.

While you can’t prevent someone from retiring or taking a better opportunity elsewhere, you can avoid hiring people who should not be hired. To do that you’ll need to invest in better systems to evaluate someone’s competency without simply asking them about it. Just as we use computer modeling for assessing risk in lending, best practices in hiring are those that utilize technology to predict risk scientifically and objectively. Years from now we’ll wonder how we did it any other way.

Melinda Carlisle, is an executive coach and organizational development specialist based in Silicon Valley, Calif. She is President of Right-Hire (www.right-hire.com), an organization that helps companies avoid making bad hires and reduce costly turnover through precise assessment, benchmarking, training and development of employee talent.