We All Worry About Making a Bad Hire

By Peter Donovan

Liking a new leadership candidate and their ability to get the job done in your organization, your culture and new market conditions is not the same thing.

The check boxes we need to tick before we are happy to hire someone are not the same set of boxes that need checking to be sure they will perform on the job.

It can take a while before we detect that we have made a bad hire and are stuck with an underperformer.

How often are bad hires made? What’s the cost to the business? How can we prevent or minimize this? There is a ‘ONE QUESTION’ solution.

No One Sets Out to Make a Bad Hire But it Does Happen (a Lot)
It may be a couple of cycles of underperformance, 6 months, a year, before we and others start realizing that we may have made a bad hire.

Most often, the poor performance is not dramatic enough for a firing offense, but you now know they will never get to where you needed and expected them to perform. You are stuck with a bad hire and have to give up your time to do some of their job, limiting your ability to be successful, and then you may become an underperformer. This cycle can worsen when a company’s inaction or culture accepts that it is OK to live with underperformers.

According to the stats a bad hire happens all too often; almost every other hire is a bad hire. A ‘40% – 50% failure rate’ on new hires has been consistently reported by research from the Corporate Executive Board (CEB), Leadership IQ, Executive Search firms and many others.

What’s the Cost of a Bad Hire to the Business?
Bad hires do happen and the cost of getting it wrong according to decades of research by TopGrading and The Chief Executive Magazine can be crippling for a company.

  • For an upper level manager, the cost can be 27 times the base compensation. For a $200K base salaried executive that’s over $5M. Hours wasted can be as much as 200.
  • The average cost of a bad CEO hire of a large company is $53M, for a mid-range company it’s $22M, and for a small company it’s $13M and hours wasted goes up to 1000.
  • It’s not just the financial cost but the loss of not seizing new business opportunities, which is unrecoverable.

Why Might Unintentional Bad Hires Happen?
Here are a few additional factors that add to why we might make unintentional bad hires:

  • Hiring decisions are made under pressure: Most senior level hiring decisions are made under a time pressure to fill a critical position, it’s rarely a planned activity.
    • It can become a panic to replace someone quickly that resigned unexpectedly.
    • Events have changed and now an executive that has been underperforming for some time has become a bigger issue and their lack of impact becomes untenable and they need to be replaced.
    • A new growth opportunity comes up, that needs seizing before the competition, but the company does not have this expertise developed in-house and now urgently needs to hire in a new leader.
  • Recruiting is not a day job: The trouble for most Boards, CEOs, Executives is that the art and science of hiring is not a daily task where their skills are continuously honed. It’s often a gut feel activity.
  • Making do: Many executives (more so in the COVID-19 world) are tempted to delay the hire they need and ‘make do’ in the following ways:
    • By managing the damage of poor performers, bringing in people they know are not the perfect fit or promoting a junior person with the hope they will get by.
    • This creates a cultural acceptance of underperformance and it follows that you are likely missing out on the identification of new opportunities for future growth.
  • No accountability: There is no accountability for making a bad hire (nor reward for a good hire). New hire performance is not something most companies track over time. As such, there is no motivation or review framework to learn from.
  • Always other factors: Business is ever changing and there are so many other factors we can point to as to why someone might be underperforming or failing. In our experience, the root cause is likely to be something that was not checked for at the hiring stage.

Making a great hire is more complicated than we think and worthy of a deeper understanding, starting with the recognition and analysis of bad hires and what made a great hire, then building these checks into your pre hire, hire and post hire practices.

What’s the ‘ONE QUESTION’ Solution?
All clients worry about making a bad hire, more so at the eleventh hour, and we have often been asked what they could do to prevent or minimize this.

We advise our clients to ask themselves the ‘ONE QUESTION’ before making any senior executive hire…

“Is your leadership candidate as good as or better than your current top performers?”

Your top performers have found a way to be successful in your organization, your culture, your good or bad markets and worked out how to achieve the new challenges and opportunities ahead.

As business leaders you can easily compare the top performers you know well with the candidate you are looking to hire and make a judgement to determine if you see the new hire becoming as good as or better than your current top performers. Your judgement may still have an element of gut feel to it, but this is the right question to ask to make the best decision.

If you don’t see the new hire becoming one of your top performers at the tasks you are asking them to accomplish, then don’t hire them or ask more questions or do more reference checks until you can decide one way or the other.

Research into Good and Bad Hires and the Use of Checklists
We did not pull this ‘ONE QUESTION’ out of a hat… This came from research and empirical learnings where we asked over 100 plus successful executives to share, in hindsight, their insights from the best and worst hires they had made. From this research we built and validated a GameChanging Leadership CHECKlist™ to determine if you are making a good or bad hire. We have continued to ask these questions each year for over a decade and get the same responses.

Nothing should replace a best practice pre hire, hire and post hire executive search and recruitment process but we are all human and CHECKLISTS are an important ADDITION to improving the number of great hires you make.

As outlined in “The Checklist Manifesto” no matter how expert you may be, well-designed checklists can improve outcomes. Checklists are used by other professionals such as surgeons, who have saved 40% more lives on the operating table, and by pilots every day to make sure we fly safely and don’t make the same fatal mistakes twice.

 

The GameChanging Leadership CHECKlist™ has 5 main areas of assessment (Capable, Heart, Endgame, Culture, Keeper) and 15 questions, one being the ‘ONE QUESTION’ “Are they as good as or better than your top performers?”

We call this the ‘ONE QUESTION’ because out of all the insights we have gathered from successful executives this was the only question where their bad hires consistently rated low, a 1 (failed) or 2 (less than expected). Hindsight is everybody’s friend.

GameChanging Leadership CHECKlist™

The GameChanging Leadership CHECKlist™ rates the perceived performance of the candidate to be hired for both current and future business dynamics.

  • Good hire: Across the 15 questions good hires will rate mostly 4s (better than expected objectives) and 5s (exceeds expected objectives) and the rest 3s (meets expected objectives).
  • Bad hire: If you rate any of the 15 questions a 1 (fails expected objectives) or 2 (less than expected objectives) then that’s a red flag for a bad hire and a potential on the job underperformer and needs assessing further.

If smart professionals such as surgeons and pilots use checklists then why not hiring managers?

Doing the same and expecting different results is a common quote but relevant in the case of bad hires given most of us were unaware how often this happens . If you don’t have a Checklist today for making great hires (and preventing bad hires) then now, ahead of the transition from a COVID to post COVID business environment, is a good time to create one.

Increase the Bench Strength of Your Leadership Team

Additionally, new hires are one of the best ways to increase the bench strength of your leadership team and company. There is no downside to a strategy of hiring people that are as good as or better than your current top performers.

It makes no sense to settle for hiring a leader that might get the job done in the short term but has limited potential to take on bigger responsibilities over time or someone that may be OK now but unable to adjust to changes in the market.

Allowing, perhaps unknowingly, a business strategy that accepts the hiring of leaders that are unlikely to become as good as your current top performers is just not going to work in the COVID/post COVID world. We won’t see business as usual for many years to come. To thrive in this world companies will need leaders, top performers, that can help their organization become more adaptable, creative, bolder and all with a sense of urgency.

If in Doubt!

We all worry about making a bad hire, especially in the still unpredictable markets ahead for 2021. If in doubt, make sure you answer YES to the ‘ONE QUESTION’… “Is your leadership candidate as good as or better than your current top performers?”

We hope this ‘ONE QUESTION’ solution and our Game Changing Leadership CHECKlist™ can help you to make the best hires possible.

Peter is one of the founding managing partners of Top Gun Ventures with a focus on executive recruitment and development of GameChanging Leaders, Teams and Organizations and the IMPACT this has on making companies successful. Learn more about Peter.

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