The hidden cost of a bad hire — and how to avoid it

Every company has been there. A hire made with high expectations — well-run selection process, positive references, promising interviews — that simply didn't work out. Three, six, twelve months later, departure was inevitable.

What follows is what most companies prefer not to calculate with precision: the total cost of that wrong decision. And when the calculation is done, the numbers are alarming.

What goes into the cost of a bad hire

SHRM (Society for Human Resource Management) estimates that the cost of a bad hire equals between 50% and 200% of the professional's annual salary, depending on the level of the position. For leadership roles, this percentage can exceed 300%.

Visible costs (those that appear in the budget):

• Termination costs and labor expenses
• Recruitment fees (internal or consultancy) for the new process
• HR team time dedicated to the repeated selection process
• Onboarding and training cost for the new professional

Hidden costs (those rarely accounted for):

• Productivity loss during the period of low performance before dismissal
• Manager time dedicated to performance management and difficult conversations
• Impact on the morale and engagement of the rest of the team
• Projects delayed or poorly delivered during the transition period
• Loss of clients or opportunities due to lack of continuity
• Lost institutional knowledge that left with the professional

The cycle no one wants to see

1. The professional doesn't perform as expected
2. The manager invests time trying to develop or fix the problem
3. The rest of the team absorbs the performance gap — generating overload and resentment
4. The situation drags on longer than it should due to hesitation to dismiss
5. When the departure finally happens, the team is worn down
6. The selection process starts again with urgency — which tends to worsen the quality of the next decision

"Urgency is the enemy of quality recruitment. And bad hires create urgency."

Why companies keep making the same mistakes

• Speed pressure: the position is open, the team is overloaded, urgency pushes for a quick decision.
• Superficial briefing: the process starts without sufficient clarity about what really defines success in that role.
• Confirmation bias: the recruiter or manager is charmed by the candidate in the first interview and then seeks evidence confirming the initial impression.
• Technical-only assessment: technical competence is verifiable and easy to assess. Behavior, motivation and cultural fit are harder — and frequently receive less attention.
• Superficial reference checks: reference validation is treated as a formality rather than an investigative tool.

How to structure a process that reduces risk

1. In-depth briefing before any search: what defines success in the first 90 days? Which behaviors are non-negotiable?
2. Structured scorecard: evaluation criteria defined before seeing any candidate, with weight assigned to each dimension.
3. Competency-based interviews with behavioral evidence: questions that investigate what the candidate actually did in past situations.
4. Deep reference validation: speaking with former managers and colleagues, not just the contacts the candidate indicated.
5. Complementary behavioral assessment: profiling tools don't decide — but they widen the diagnostic and raise hypotheses for the interview to confirm or refute.

The investment that actually makes sense

Companies that hesitate to invest in a well-structured selection process are often saving in the wrong phase. The cost of a well-conducted process is a fraction of the cost of redoing the process after a bad hire.

At MyT, we calculate this way: the cost of a well-conducted process for a managerial position is, on average, 15–20% of the professional's annual salary. The cost of a bad hire for that same position is between 100% and 300% of the annual salary. The math is simple — what often lacks is the decision to treat recruitment as a strategic investment, not an operational cost.