The Cost of a Bad Hire

Wednesday, February 1, 2006 - 08:07

Skills shortages, workers with new lifestyles and priorities, and a lost work ethic and loyalty factor mean that managers have to revise their hiring practices. Jane Cherrington reports.

It makes sense to put more effort into hiring when one in five employees turns out to be a bad hiring decision, according to a recent global study.

The 2005 Selection Forecast, released by HR consultants DDI Australia, which looked at the hiring practices of almost 1600 HR managers in 348 organisations, estimated that the annual employee turnover costs in an organisation with 5000 employees could amount to more than $2.2 million.

Forget the line "people are your greatest asset", says DDI's General Manager and National Marketing Manager Mark Busine. "It's actually the right people are your greatest asset," he says.

Referring to recruitment as "part art, part science", Busine says that while employers are never going to be "100 per cent confident" about every new hire, they can increase the probability of getting the right people by improving their recruitment strategy and backing that with a range of selection testing and processes.

Organisations are typically reactive when it comes to recruitment, says Busine. "Someone leaves the organisation and all of a sudden there's a position to fill. The pressure is on because lost time translates into lost revenue or productivity. Then, if the market is tight and there's a short supply of good candidates, employers are tempted to make decisions quickly."

Improving selection procedures takes a "little bit of an investment", says Busine, and time, but it pays off. The 2005 Selection Forecast found that 70 per cent of organisations with high-quality hiring systems outperform their competition financially.

The recruitment funnel

The first step is to identify the successful attributes of a candidate for each of the key roles or job levels across the organisation, says Busine. "You really need to define what a successful employee looks like so that you'll know them when you see them."

Next, says Busine, is to think of the selection process as working like a funnel. "You're slowly eliminating people who don't meet particular criteria. It can start with simple screening measures that test for organisational fit and motivation for a particular job."

Then, with a short list of candidates, Busine recommends a more thorough approach to interviewing such as using behaviour-based interviewing techniques. "Good behaviour-based interviewing assumes that past behaviour is a strong predictor of future behaviour.

"I would never completely ignore intuition or gut feel, but it's about putting a bit more science behind it," says Busine.

While some industries are not faced with a skills shortage, it's another story at Integral Energy, the second largest state-owned energy corporation in New South Wales . The company has been forced to consider overseas recruitment for some positions and has increased its intake of apprentices to ensure a ready supply of workers.

"For example," says HR Manager David Lowe, "everyone is screaming out for electrical line workers, they're in demand."

But overseas recruitment is not an easy solution, says Lowe. "It can be problematic because you're asking people to pack up and change lifestyles. Then, if you're talking about bringing out a family, you've got to think about their children as well.

"When you recruit from overseas it's not as simple as bringing out a single worker - it's the whole package, you must 'sell' Australia to them," Lowe says.

It can also be expensive, he admits, plus there is the red tape. "You have visa and immigration issues, qualification issues - are they properly qualified to work in our distribution network?"

Integral Energy has considered using an agency to help out with recruiting from other countries. "You have to be careful with overseas applicants because you have the tyranny of distance, and doing reference checking with an overseas candidate can be difficult. A recruitment agency with a base overseas can do all that for you, give you a shortlist and then you go overseas and interview the short-listed candidates there," says Lowe.

He stresses though that the company is doing all it can to provide work for Australians first through its own training programs. "Overseas recruitment is really a last resort for us," says Lowe.

It goes without saying that given the cost and effort involved in recruiting, retention of workers is important.

Lowe says Integral Energy's conditions of employment have helped it to achieve a low staff turnover, particularly in its call centre where turnover rates are high.

The company's conditions include a nine-day fortnight, a 35/36-hour week for most workers, and competitive salaries.

A balanced equation

Employers are also finding that workers are increasingly demanding "work/life balance" and increased flexibility in the way they do their jobs.

A study by WA-based labour market consultants Centrecare Corporate has found that personal and relationship issues account for some 80 per cent of all sackings and resignations.

The research found that only 15 per cent of terminations were related to job performance.

There is a high correlation between interpersonal and work-related difficulties, says Peta Slocombe, Manager, Centrecare Corporate.

"For example, people who are experiencing relationship conflict at home will also experience conflict in the workplace; people experiencing depression at home will experience that in the workplace. People who cite anxiety and stress as an issue, also cite workplace stress as an issue," she says.

Slocombe points out that achieving a work/life balance is not easy. "With remote access, working from home, PDAs and mobiles, there is no separation anymore between work and home.

"Employers of choice need to recognise that they're part of the reason employees have performance difficulties and leave their jobs," says Slocombe.

"Our clients are saying it's not about money any more for people. They want to work in organisations where there is support for personal challenges, skill development, good leadership and those types of things," she says.

At The Heat Group, a range of employee benefits and working conditions has translated directly into bottom line benefits, says Managing Director Gillian Franklin.

The company, a cosmetics marketer that represents the brands Max Factor and Covergirl in Australia , on behalf of Procter and Gamble, has grown rapidly in the four years since it was established. It has almost doubled sales from about $26 million in 2001 when it took on the two brands, to almost $50 million this year. "If we'd grown at the same rate as the market we would only be around $31 million today," says Franklin . "Yet the brands are the same, so what has changed is the people who've been managing it."

Staff numbers have also tripled during the period to just over 70.

Franklin attributes the company policy of diversity in the workplace as an underlying contributor to its success.

"We try to have a mixture of people in terms of gender, ethnic backgrounds and social backgrounds."

"That means you need to be able to offer attractive policies that allow all types of people to meet their lifestyle needs; so we've evolved more and more flexibility as the company has grown," says Franklin .

"For example, out of five senior executives who report to me, two work part-time.

We have flexibility in working hours," says Franklin .

But, she warns, for a flexible hours policy to work, there has to be a "very high" regard and respect for other people. "If you start having that flexibility undermined it can really destroy it."

Hot stuff

"We start with the principle that we respect everybody, we value their contribution and therefore we will accommodate what suits them in order to retain them in our business," says Franklin.

The Heat Group also offers staff three months paid maternity and paternity leave, although it has recently amended the policy to encourage staff to return.

There is also a "new baby week" for men - a week of paid leave for new fathers; and "family leave" for sick children or relatives.

All employees of The Heat Group are covered by life insurance and for loss of income as part of their salary package at no cost to them. "It's a very small cost to the company but a great benefit to everybody," says Franklin. "We negotiated that through our bank, as well as reduced mortgage rates and fees for any employees that sign up with the bank.

"Employees also receive an allowance of free products and a 'lifestyle weekend'. Every second Friday they can finish work at 1pm," says Franklin.

The Heat Group's working policies extend to the physical environment as well, with an open-plan office apart from a couple of meeting rooms. "Everyone from myself to the most junior person has the same size desk," says Franklin . "That's both emotional and physical, we say. We don't have the hierarchy of knocking on doors and making appointments."

Franklin attributes her interest in creating a flexible working environment to her passion for improving Australia's economic results: "I want Australia to be a viable country for all of us to live in," she says. "I recognise that in order for us to do that we need to get our fertility rate up, and we also want more women to work. If you want women to work and women need to have the children, then we have to try and accommodate those things."

Fishing for talent in a sea of change

With recruiting and retaining the best people becoming more and more difficult as the candidate market tightens, HR departments are turning to recruitment process outsourcing (RPO) as a solution, according to Alexander Mann Solutions.

RPO is working with an external partner to improve the way a company moves people in, around and out of an organisation. This may include experienced hires, contingent workforce procurement, internal mobility and career management, and outplacement.

"There's been a big shift in the way job seekers apply for jobs. Not only are they going to an organisation directly to apply for a job, they are also looking for a consistent experience throughout the whole process," says Tracey Cooper, Managing Director of Alexander Mann Solutions Asia Pacific.

"If your job advertisement says your company is fast-paced and that you're looking for someone to make quick decisions, then don't keep that job seeker on hold for six weeks.

"What you sell and what you deliver needs to match. You want that candidate to say in 12 months that the job is what they thought it was going to be, or even better; and that process starts right from the initial engagement of the candidate," she says.

While RPO is just becoming mainstream in Australia (Alexander Mann Solutions' clients include financial giants ANZ and Westpac), Cooper says HR managers are missing out on being able to substantially improve the delivery of services because they fear losing control of their department.

"There is a lot of confusion amongst HR practitioners about what RPO actually is. RPO is not solely about making hires and it's not about outsourcing, and therefore replacing, the entire HR function. It is about partnering with a firm to whom you feel comfortable delegating the administration and operation of the end-to-end recruitment process."

According to Cooper, increased demands on HR to be more measurable, accountable and strategic is driving the adoption of RPO in Australia and Asia Pacific.

"Australian businesses need to shift the focus of recruitment and HR a little from 'people' to 'systems'," says Cooper who draws on some of the similarities between RPO and other more established business process outsourcing activities that are now commonplace.

"If you run a manufacturing firm your core business is manufacturing. Recruitment and people management are essential to allowing your company to deliver its products, but they are not a core business function."

Writing up all loose ends

Misunderstandings and legal difficulties are common when employers do not keep their paperwork accurate and up-to-date, according to an employment law expert.

One of the main problems is with duty statements, says Leah-Barbara Maguire from Bradley Allen Lawyers.

Maguire says she often sees cases where duty statements (if there is one) don't include all the tasks expected of an employee. The problem is when the interview panel discuss the job with candidates and mention tasks and responsibilities that are not included in the written document. "Then there's a grey area because the employee isn't certain what they're being paid to do," she says. It can be made worse if the employee is subsequently asked to take on duties they may see as outside their duty statement.

Performance management and termination is often more difficult.

"It's just about making sure that everyone's on the same wavelength," says Maguire.

The letter of offer to a new employee and the employment contract are also vital pieces of paperwork. They are legal documents and not something that ought to be taken lightly, warns Maguire.

"It's common for employers to have a standard employment contract written by a lawyer, but altered in-house by someone unfamiliar with legal language attempting to make it relevant for a particular position.

"The problem here is that they may change, delete or add clauses having unintended meanings. A good example is a restraint of trade clause. If it's too broad, it will be disregarded by a court and the employer is left with no protection," Maguire says.