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THE COST OF A TOXIC HIRE
Toxic employees damage turnover, shareholder value, insurance premiums, and much more.
Here’s what you need to know
How much does a bad hire cost? It is dependent on whom you ask. If you Google “cost of a bad hire,” you’ll find percentages, arguments, and even calculators promising to show you the “true cost of a bad hire” while providing little insight other than the fact that they cost more than the worker’s salary and turnover. The problem is that none of these sources tell you how frequently you make a bad hire, making it difficult to determine how these statistics apply to your company.
Bad hires are expensive—but more concerning than the occasional rushed hire is a subset of “bad hire” that enters organizations more frequently and causes even more damage. We’ve seen an increase in the appearance of toxic employees in recent years, who are far more dangerous to businesses than a simple skill or cultural mismatch. While “bad hires” fail to complete the work, toxic workers can often survive in an organization while causing intentional harm to its property and people. Though they frequently meet company quotas, their displays of sexual harassment, bigotry, fraud, and other violations of company policy can have a negative impact on the bottom line.
Working with our clients and the public research community, we discovered new data indicating that toxic hires are more expensive than you might think. In particular, in a toxic workplace:
Good employees are
more likely to quit if the proportion of toxic employees on their team increases by as little as one on a team of twenty.
Team Performance drops
when bullying or toxic behavior distracts employees. Workers who are bullied experience a loss of motivation, which leads to less effort and fewer hours worked.
Not hiring a toxic worker over a 6-month period generates returns of over 2:1 compared to financial
returns generated when
firms hire a “superstar” fit.
Financial outcome of avoiding a toxic worker versus hiring a superstar
Toxic Employees' Annual Cost
for a company of 1,000 employees is at least
due to voluntary employee turnover and absenteeism alone
In a sample of 1,000 employees, roughly 50 will exhibit toxic behavior. Setup Edge has identified on average 7-8 people with toxic behaviors in a set of 50, helping you save $17,600 per toxic employee per year.
About 15% of reports that Setup Edge processes for clients warrant further adjudicative action for job-related behaviors, including harassment, bullying, and illegal activity.
Long-Term Stock Returns and Toxic Behavior
According to a Glassdoor study, Fortune’s “Best Companies” outperformed the S&P 500 by 84.2 percent, while a similar portfolio of Glassdoor’s “Best Places to Work” outperformed the overall market by 115.6 percent. The findings indicate an important economic link between company intangibles such as employee satisfaction, which is based on the removal of toxic behavior and culture, and broader financial performance among large publicly traded companies.
+35% in 10 years
+82% in 20 years
+146% in 30 years
Long-run stock performance
due to employee satisfaction
and engagement alone
Firms with high employee satisfaction outperform their peers in long-run stock returns by 2.3 percent to 3.8 percent per year, even after controlling for other factors that influence returns. The study drew on data from the company’s first 28 years. Credibility, respect, fairness, camaraderie, inspiring, listening, thanking, caring, and celebrating were all measured—all of which are undermined by toxic behaviors.
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