People either make or break organisations. Every person an organisation takes on board is either going to put wind in its sails or be a source of what we term “drag, drain and drift”. The cost of poor hiring decisions is remarkably high.

But just how bad is it?

Financial Cost

• Recruitment agencies charge a 10 to 15% commission on annual remuneration for a successful placement.

•  Cost is doubled for bad hires as the cost would have to be duplicated for the bad hire’s replacement.

• According to a Career Builder Survey 42% of companies report that a bad hire cost them at least R325,000.

• 25% reported a loss of at least R700,000 when making a bad hiring decision.
  

It gets worse. The Career Builder survey also found that:

• 46% of 20,000 new hires failed within 18 months.

• 81% of new hires were a disappointment due to average or marginal performance.

Then there are other costs….
Non-Financial Costs
The real damage is all the Non – Financial costs. They are difficult to properly quantify and also come in “under the radar” with the result that the deeper impact of a poor hiring decision is only seen months or years later. As a result, organisations fail to pick up the causal link between poor hiring decisions and their adverse impacts, because the time span between cause and effect is too long to make the connection. We are referring to:

•  wasted salary payments

• resources wasted on performance management, disciplinary processes, CCMA disputes

• decreased productivity

• potential reputational damage

• decreased teamwork

• decreased morale

• increased turnover

Poor hiring decisions and the resultant adverse effects can be attributed to employers throughout the world using sub- optimal selection methods. There appear to be two fundamental problems. Firstly there is an overemphasis on vetting candidates for their competencies while underestimating the role that capability plays in individual job performance as we have already pointed out. Secondly, they rely on ineffective and inappropriate selections tools when they could use more valid methods. The primary selection tool for many organisations is the job interview. In many instances, the job interview has low validity and is fraught with limitations which we will discuss at length later in this program.

In a competitive world organizations are unnecessarily creating a competitive disadvantage for themselves by using ineffective selection tools. Imagine a scenario where Company A employs sub - optimal individuals consistently over time because they utilize ineffective selection tools, whilst Company B consistently employs optimal individuals because they use effective selection tools. The cumulative effect will be that Company A ends up with a critical mass of sub - optimal employees making it impossible to compete against Company B who end up with a critical mass of high performing employees.

By adopting more valid hiring procedures, organisations could turn this competitive disadvantage into a competitive advantage. In economic terms, the gains from increasing the validity of hiring methods can amount over time to literally millions of dollars. The converse holds true. By using selection methods with low validity, an organization can lose millions of dollars in reduced production (Schmidt 1993).

When it comes to predictors of job performance, two stand out - a test of General Mental Ability and a personality test. When used in combination they have a composite validity of 0.65. In other words there is a 65% correlation between results on these two psychometric tests and overall job performance. We will discuss this in detail in later modules. Considering these high financial and non – financial costs, it seems obvious that organisations should incorporate an assessment of general mental ability and personality when selecting staff and not rely solely on job interviews.