Cost of a Failed Hiring
Failing to recruit the right person, which occurs when a recently hired person must be replaced, has both direct and indirect economic costs.
It has been estimated that direct economic costs of replacing a bad hire is between 50% and 175% of the person's annual salary which, even on the high end, can be conservative, recognizing that salary alone does not entirely reflect an employee's total compensation. Wages and salaries constitute 69 percent of total compensation, while benefits account for 31 percent.
Based on the foregoing, let's assume an academic health center has hired a cardiothoracic surgeon with an annual salary of $550,000. Excluding any sign-on bonuses, or other hiring incentives, the total first year compensation for the surgeon would be $720,500. Now, let's say at the end of the first year it becomes clear the surgeon is a cultural "misfit" and is "let go." Thus, it will now cost between $360,250 and $1,260, 875 to replace the surgeon who was hired just a year ago.
Meanwhile, the indirect costs associated with a failed hire are hard to quantify but, at a minimum, they include the following:
- Time - it will take time to hire a replacement, which is also an opportunity cost. This may adversely affect clinical volumes in both the short- and the long-term, depending upon how long it takes to hire a replacement. Meanwhile, programmatic objectives may be compromised, or even placed on hold for a lengthy period of time. For example, a transplant program may have to temporarily shut down, and later restarted. In this regard, the economic costs are enormous in terms of lost clinical volume and decreased productivity amongst clinical team members who remain employed, but await an eventual program restart.
- Morale - failed hires adversely affect other members of the clinical team. For example, over the course of a year, during which the failed hire becomes increasingly apparent, various team members have undoubtedly become discouraged and unproductive. Some may have even defected to other clinical areas within the same medical center, or they may have elected to join a competing health care system. Thus, one failed hire leads to the need for multiple new hires within the clinical team, adding yet another direct economic expense.
- Confidence - highly valued employees lose confidence in management when there is a failed hire. Frequently, some members of a clinical team accurately predict a failed hire before it occurs based on their involvement in the initial interviewing process. In the face of failure, people will often acknowledge the misgivings they had to start with. In other words, they may not have "likes" the candidate in the first place. It is difficult for such people to understand why management failed to recognize what they did months earlier. Thus, management looks inept, and incapable. This often results in reassignments, or even firings, when administration is "held accountable." In short, someone must "take the fall," and they typically take a lot of people with them.
- Knowledge - failed hires, and team members who defect to competing organizations, take valuable knowledge with them wherever they end up. If the failed hire "leaves town," the problem may be minimized, to some extent. However, if team members who have defected go "across town" to a rival health care system, knowledge can become a major competitive issue.
- Reputation - an institution's reputation takes "a hit" whenever a high, or even a reasonably high, profile person is fired, or decides to leave "when the writing is on the wall." This can have devastating consequences. First, the failed hire has "tales to tell." More often than not, whether the tales are true or false, these are extremely negative. Gossip and innuendo ensue. Second, due to the aforementioned tales, it becomes increasingly difficult to attract top talent. The word gets out, and qualified replacements simply shy away from an organization, often citing gossip and innuendo.
- Patients - failed hires have patient-related consequences. What patients see in turnover is instability and uncertainty. Turnover directly affects the clinical care they receive, and may have dramatic emotional and psychological consequences. Patients have very strong relationships with caregivers at all levels. When there is a disruption, problems are inevitable, some of which may even have survival/mortality implications. In other words, a failed hire can actually kill patients.
- Litigation - more often than not, there is litigation associated with a failed hire. In this case, the medical center is going to get sued by the person who got fired. This strategy intended to solve the problem has become the "norm." Disgruntled former employees rarely leave "in the dark of night, never to be heard from again." Instead, they use their circumstances to caste negative light on their former employer, thus assuring a "reputational hit." Severance agreements are often rejected by failed hires because there is the potential for greater economic returns through legal proceedings. In short, get a good lawyer and you will be further ahead. In the end, failed hire litigation can cost an institution, not thousands, but literally millions of dollars.
Based on the foregoing direct and indirect costs, hiring misfires must be avoided and, to every extent possible, eliminated as even a remote possibility. This can only be accomplished when a knowledgeable intermediary, who separates the job candidate from the potential employer, is directly involved in the recruitment process. In this regard, the only organization in the world providing the required services in a knowledgeable manner to the transplant community is the United Network for the Recruitment of Transplantation Professionals (UNRTP). We know the people, the programs, and the problems. Our goal is to eliminate the nonsense, and help build functional transplant programs.