Bad Hires a Big Cost to Employers

April 13, 2006 ( - Replacing a bad hire can cost as much as five times the employee's annual salary in recruitment, training, severance and lost productivity, according to a new survey.

According to The Canadian HR Reporter, 42% of the organizations surveyed by Right Management said a bad hire cost them twice the employee’s annual salary. Twenty-six percent said it cost them three times the employee’s annual salary, while 15% reported an amount equal to the employee’s annual salary.

Eleven percent of survey respondents reported that it cost them five times the employee’s annual salary to correct the mistake of a bad hire.

“A bad senior-level hire or promotion can severely damage a company’s external brand, affecting customer trust and loyalty, and resulting in lost commercial opportunity,” said Mary Marcus, vice-president and national practice leader of Right Management, in the news report. “Similarly, erosion of shareholder and investor confidence in leadership can result in declining stock values. The higher the position, typically the more costly the hiring or succession mistake.”

The primary repercussions of a bad hire cited by organizations included:

  • Lower employee morale – 68%,
  • Decreased employee productivity – 66%,
  • Lost customers or market share – 54%,
  • Higher training costs – 51%,
  • Higher recruitment costs – 44%, and
  • Higher severance costs – 40%.

Survey results are from 444 North American organizations.