The Cost of Hiring an Underperformer

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Apr 30

The Cost of Hiring an Underperformer

Focus on employee turnover is a thing of the past. And more recently, focus has shifted towards increasing employee engagement. While both of these variables impact the cost of doing business, they pale in comparison to the cost associated with the hiring of a mediocre, underperforming employee.  

How to Spot an Underperformer

An underperformer might be a salesperson who is expected to secure 90+% of a quota but only delivers 71%. Selling just enough to avoid being fired, the rep will have missed out on countless opportunities to find new sales and close existing ones. Hire an underperformer and your competitors will be tempted to send you a thank you note.

An underperformer might be a former engineer who is now leading an engineering team but would rather be engineering. This scenario is similar to a story of an engineering manager who once told me, “this people management crap is the s#%t I have to do on top of my real job.” He viewed every knock on his door as an interruption to the small amounts of engineering that he still occasionally got to do.

The underperforming leader wasn’t focused on building his employees and teams into top performers. His lack of leadership, settling for mediocre employee performance and demoralizing his team cost the company, at a minimum, millions of dollars over the course of the five years he maintained employment with the company.

  • Which similar situations are costing your company?
  • How much money is your company leaving on the table?

Considerations

  1.     The cost of employee underperformance is literal.

Consider the financial impact that hiring a top performer will induce. Your top performing employees, that is, the highest producing 5% of your workforce, produces 26% of your company’s total output.1

If you do the math, top performers produce over 400% more than your average employee. This means that you lose hundreds of thousands of dollars in annual profit due to lost output every time you hire an underperforming employee instead of a top performer. The cost is substantial, so knowing how to hire top performers is critical to the overall success and longevity of your business.

  1.    The impact of an underperformer is far-reaching.

Consider the effect that hiring an underperforming employee has on the overall morale and productivity of the entire staff – how is this directly, and indirectly, impacting direct reports?  

  • Does the underperformer accept responsibility for their poor performance or do they blame their co-workers and/or boss for their workplace challenges and low output?
  • Does the underperformer’s mindset reflect that of an employee who is inclined to serve others or do they have a more inward focused mindset?
  • Does the underperformer show a focus on forward progression by creating innovative solutions that build competitive advantage?  

If you’ve answered “no” to any of the above questions, your competitors will thank you.

The influence of an underperformer is systemic, feeding mediocrity in the workplace. And worse, this influence can be so far reaching that it may even lead to a decline in the output of your top performers or those who show promise in becoming members of your top performing workforce.  

  1.    Time is money – and an underperformer will consume both.

Consider the cost of your company’s efforts to coach, encourage, document and fire an underperforming employee. What is the extended financial cost that you incur when your above average and top performing employees realize that you’re tolerant of much lower output?

  1.    An underperformer brings more associated costs than traditional turnover.

Consider the cost of an underperformer compared to the cost incurred from traditional employee turnover. Not only will you face turnover cost when making the decision to let go of an underperformer, but you’ll be paying for turnover plus resources spent on recruiting, mentoring, and counseling the underperformer while they were a member of your team.  

And let’s not forget the losses you incur as a result of opportunity cost. Every time you hire an underperformer, you’re compromising sales revenue, new client acquisition, and current client retention. A top performer will perform at a significantly higher threshold across the board – and the gains are worth taking the time to figure out how to vet the kind of talent that is build for top performance from the beginning.

The cost of hiring an underperformer is substantial, but you can avoid the losses that accompany hiring underperformers by knowing what to look for and how to place people according to their skill set.

References

  1.     O’Boyle, E., Jr., & Aguinis, H. (2012). Top Performers Produce 4x More Output and Higher Quality Referrals. Personnel Psychology. Retrieved from https://onlinelibrary.wiley.com/doi/full/10.1111/j.1744-6570.2011.01239.x.

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Author

Jim Connolly is Founder & CEO of OrgEx, Inc. OrgEx, Inc. helps companies systematically apply principles of human behavior to improve operational performance and financial results.  Jim has completed more than 2,000 behavioral interviews for his clients.

Jim is a sought-after speaker who uses humor to challenge the thinking of his audiences.  Jim understands how people think and uses that knowledge to equip, cajole and inspire audiences.  He has spoken to audiences as large as 1,100 people.

In his consulting practice, Jim helps clients with their most pressing people challenges, including:

  • Eliminating hiring mistakes
  • Reducing employee turnover
  • Underperforming teams – sales teams, project teams, leadership teams
  • Leader performance challenges
  • Resistance to organizational change efforts that are necessary to move the company forward
  • Systematically building toward record-setting and industry-leading performance

Whether it’s a company-wide issue or working with a specific department or team, we know how human behavior works so we know how to improve organizational performance and financial results.  Find out more at www.OrgEx.com.  

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