Cost of a Mis-hire

2011 will be a year where you are likely faced with multiple hiring decisions. Key factors driving these will be:

1. Risk Management – Strengthening your risk organization and continuing to resolve problem assets.
2. Regulatory Compliance – Hiring to manage the new (and still largely unknown) requirements that will come with the new legislation.
3. Growth – Increasing revenue through careful balance sheet growth and diversified income streams.

Capital and expense management are at a premium, so it is imperative to make good decisions about the people you hire. The cost of a mis-hire isn’t limited to the salary and benefits costs that were invested in the new employee. The real cost includes factors such as reduced team productivity and missed client opportunities. The cost of a mis-hire has been thoroughly researched and there are many estimates, but reasonable ranges are from 10-20 x base salary when all factors are considered.

There is no bulletproof solution, but there are tangible steps you can take (and implement throughout the company) to avoid hiring the wrong person. We will explore these over the next several blog posts, but let’s start at 5,000 feet:

First – Step back and consider these questions:

• Do you see hiring as an HR function or a business function? The two should not be separated. Every person in the company has a business purpose. In fact, the first question you should answer when you define a position is “what is the business purpose of the position?”

• Do you approach hiring a new employee in the same way you do evaluating and underwriting a loan decision, pursuing a new account or preparing for a regulatory exam? Think of the time and effort you put into those activities. Hiring should be no different – job definition, interview preparation, candidate follow-up – they all take time, but are critical to establishing a quality hiring process.

Second – Hire with BOTH a sense of urgency and with diligence. Many times, one of these is lacking.

• If companies hire too quickly because they have a strong need, they may not complete appropriate due diligence on the candidate, therefore causing issues down the line.

• If companies linger with due diligence and the process takes too much time, companies may lose a good candidate.

The belief in and execution of the above concepts must start at the top. Therefore, in the spirit of the New Year, I am proposing a few 2011 hiring resolutions for companies.

1. Commit to purposeful and diligent hiring. Everyone involved in the process and decision should be a part of this commitment.
2. Commit to taking the time to define the roles and objectives for positions that you fill. This will give you a guide to measure candidates.
3. Commit to preparing properly for interviews, asking targeted questions, and measuring candidates against the goals and objectives outlined.

Pick an open position that you have right now and check your process against the above goals. If you are lacking, pull together the people involved in the hire and take 30 minutes to make sure you approach it effectively. The upfront time is well worth the investment if it saves you the pain and cost of a mis-hire.

The next several blog articles will describe how to continually improve your hiring process in the following areas:

• Defining the position
• Screening candidates
• Preparing for interviews
• Interviewing
• Using references and sources