Ouch, 50% Of New Hires Fail! 6 Ugly Numbers Revealing Recruiting’s Dirty Little Secret

Large corporations have thousands of business processes, but I doubt that you’ve ever heard of a single process that has a 50 percent failure rate. So your firm’s executives will be shocked to learn that the recruiting process (the HR process with the highest business impact) often has a failure rate of 50 percent. And that astonishing failure rate occurs at every job level, from hourly employees, to managers, and even at the executive level. You don’t have to be a CFO to calculate the tremendous dollar costs, negative business impacts, and the lost productivity that results from each and every hiring failure. So assume for a minute that you are a corporate executive and then consider what your response would be when you were presented with the following revealing table.

The reported failure rates at the six job levels presented above were reported by five different independent organizations. This consistency indicates that this high failure rate is not a statistical anomaly.

What in the Hell Is Going on in Recruiting?

If you understand the common business process success measure Six Sigma, you know that in layman’s terms it means that a little higher than three errors occur per million tries. The failure rate in these five job level areas ranges from a low of 40 percent and a high of 82 percent (or an average of 500,000 errors per million hires). Obviously, even if the reported failure rates are off by a significant margin, something is seriously wrong with the results produced by most corporate recruiting processes. If the business processes of production, customer service, marketing, or product design had anything close to these failure rates, heads would roll and budgets would be slashed. Yet recruiting leaders march on oblivious to the damage that these bad hires are doing to their corporation.

Selection decisions are often about as accurate as a coin flip. The Recruiting Roundtable

The Causes of These Unacceptably High New-hire Failure Rates

There are literally dozens of reasons why failure rates are not measured in recruiting. However, the six most impactful reasons include:

  1. No measurement of the cost of a bad hire — executives at all levels only demand change when they see that it’s costing them revenue. If they realized that the cost of a hiring failure can easily reach three times the salary for the position, they would demand immediate action. And if the new hire interacts with customers, the costs are much higher.
  2. Process design isn’t scientific — almost all corporate recruiting processes are designed based on past practices or intuition. Unfortunately, it is quite rare for recruiting processes to be designed from the ground up based on correlation data that reveals which process elements accurately predict future success on the job. Without using process reengineering principles, it is unlikely that recruiting results will improve.
  3. Intuition rather than data-based decision-making — in my research I have found that over 75 percent of the decisions made during most corporate recruiting processes are made by humans relying on their own intuition, rather than data. And unfortunately, even when recruiting executives are presented with data, they seldom take immediate action.
  4. Process updates are a hodgepodge — most corporate recruiting processes are literally never periodically redesigned based on business process engineering principles. Instead, elements of the process are added, removed, or modified on an individual basis, and often only when a major issue or new vendor offering comes along.
  5. Hiring failure rates and quality of hire are not even measured — although it is a standard business process step, I estimate fewer than 10 percent of corporate recruiting functions systematically measure and report their process failure rates. And if you don’t measure hiring failures, you can’t use “root cause analysis” to find out and fix the causes of that failure. And since a majority of recruiting functions don’t even measure quality of hire (the on-the-job performance of new-hires), they also have no way of knowing when a new-hire was a success.
  6. HR is not a data-driven function — because very few things in HR are data-driven. It’s not surprising that recruiting and all other processes in HR have not shifted to a data-driven approach. Without pressure from the rest of HR, there is little reason for recruiting to proactively become data-driven.

Additional High-Impact Failures In Recruiting

Even if you choose to ignore new-hire failures, recruiting fails in many other areas too. A small sample of those failures include:

  • Application process drop out — “The typical Fortune 500 company loses 9 out of 10 qualified applicants to these unwieldy processes” (Source: Indeed survey)
  • Interviews don’t predict — We looked at tens of thousands of interviews results … and how that person ultimately performed in their job. “We found a zero relationship. It’s a complete random mess” (Source: Google)
  • Managers regret hiring decisions — “66 percent of hiring managers come to regret their interview-based hiring decisions” (Source: DDI)
  • Qualified applicants — A majority of managers surveyed “believe that less than half of all candidates that they interviewed were qualified” (Source: eBullpen LLC).
  • Resume sorting — Of all the “perfect resumes” sent out by mystery shopper candidates, only 12 percent of these “ideal candidates” were actually scheduled for interviews (Source: Hodes’ Healthcare)
  • Promoted executives  “40 percent of newly promoted managers and executives fail within 18 months of starting a new job” (Source: Manchester Inc.).

Define New-hire Failure

Because every situation is different, corporate recruiting leaders need to work with executives to determine the definition of a “hiring failure” that is most appropriate for their organization. Some of the factors (negative things that occur within 18 months of hiring) that others have included in their definition of the hiring failure include:

  • Terminations — new hires that must be terminated or forced out.
  • Turnover — early voluntary turnover among above-average-performing new hires.
  • Job performance — new hires that perform at below average or unacceptable levels or new-hires who must be put on a performance management program.
  • Training — new hires who must be provided with significant unanticipated training.
  • Up to speed — a time to meet minimum productivity standards that are 50 percent above average.
  • Salary cost — salary waste when a new hire who is paid above the midpoint underperforms.
  • Movement — a new hire who must be redeployed because they didn’t fit their initial team.
  • Legal issues — complaints or legal issues as a result of the employee’s hiring process.
  • Manager satisfaction — a high percentage of dissatisfied hiring managers.
  • Diversity — unacceptably low diversity among new-hires in customer impact positions.

Final Thoughts

Although few corporations measure new hire failure rates, a significant number also inexplicably fail to measure the on-the-job performance of new hires (i.e. quality of hire). If your goal is to increase the business impacts of recruiting, measuring the percentage of new hires that are above average performers is probably an even more important measure. Work with the CFO’s office to calculate the dollar impact of each bad, weak, or top performer/innovator new hire. Because like most things in business, recruiting is really all about the money.

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About the Author

Dr. John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high-business impact; strategic Talent Management solutions. He’s a prolific author with over 900 articles and 10 books covering all areas of talent management. He has written over a dozen white papers, conducted over 50 webinars, dozens of workshops, and he has been featured in over 35 videos. He is an engaging corporate speaker who has excited audiences at over 300 corporations/ organizations in 30 countries on all six continents. His ideas have appeared in every major business source including the Wall Street Journal, Fortune, BusinessWeek, Fast Company, CFO, Inc., NY Times, SmartMoney, USA Today, HBR, and the Financial Times. In addition, he writes for the WSJ Experts column. He has been interviewed on CNN and the CBS and ABC nightly news, NPR, as well many local TV and radio outlets. Fast Company called him the "Michael Jordan of Hiring," Staffing.org called him “the father of HR metrics,” and SHRM called him “One of the industry's most respected strategists." He was selected among HR’s “Top 10 Leading Thinkers” and he was ranked No. 8 among the top 25 online influencers in talent management. He served as the Chief Talent Officer of Agilent Technologies, the HP spinoff with 43,000 employees, and he was the CEO of the Business Development Center, a minority business consulting firm in Bakersfield, California. He is currently a Professor of Management at San Francisco State (1982 – present). His articles can be found all over the Internet and on his popular website www.drjohnsullivan.com and on www.ERE.Net. He lives in Pacifica, California.

  • Howard Flint

    Excellent analysis of the biggest (but often not talked about) issue in recruitment. Hiring by intuition, no measurement of post hire performance, and no realisation that the cost of a bad hire is huge.

  • David Perry

    John, great roundup of information. Very helpful indeed. I have used a few of these resources for emphasis in ‘Executive Recruiting for Dummies” but I didn’t have them all. I’d like to send you a copy. If you could send me your email to dperry at perrymartel.com I will do this today.

    Again, many thnaks.

  • http://www.intelligentta.com/ Rob McIntosh

    Great piece John and your’e so on point with the comment about not being data driven. I have spoker with hundreds of TA/HR leaders and looked at their ATS data in the last few years, and 50% of their data is crap. Not tracking the right things (or can’t), recruiters updating the system every once in awhile, or operating outside the system of record, or simple human errors.

    It’s hard to enable change if the integrity of your data is disconnected from a business executives reality. Can’t imagine what would happen if the CFO said only 50% of their Financials were accurate.

  • Tony E. Madison

    Try working harder and talking to more people, and not allowing a computer to decide who qualifies and who does not.

  • http://www.PeopleAssessments.com Tom Janz

    I am a big fan of Dr. Sullivan. But we should always have the courage to question each other.

    Has anyone else noticed that the sources for these high failure rates in the table provide no cited data (so likely PFA numbers) and are ALL companies that offer services to either reduce the failure rate or fix up the failures. Why don’t we ever learn to “follow the money”?

    The actual failure rates vary a lot based on the degree of subjectivity in the screening and hiring decisions, the prediction power of whatever assessment methods are deployed, the quality of the talent entering the top of the funnel, and the success of hiring managers on closing offers.

    And Tony– no! Working harder and talking to more people DOES NOT result in improving hiring decision accuracy. Read the research done by MIT economists that quantified the percentage of times that hiring manager were right when they overrode the assessment recommendation. About 70% of the time, the assessment and the hiring managers agree. But for the 30% when they didn’t, managers who went with their gut over the test were wrong 85% of the time.

    So lots to like in John’s article as always, but no need for quite as much gloom and doom. The updated working paper by Schmidt, Oh, and Schaffer (2017) summarizes 100 years of research findings on the prediction power of 31 different screening and selection methods. And these are refereed published findings by people who aren’t selling anything. Here’s the link https://1drv.ms/b/s!AphOkBQmvFoxgbITTV746xdu7goQCA
    just in case all you folks interested in objective, quantified analytics want to discover what scientists have learned with your hard earned tax dollars. (I used to be one. Now I actually work)

    • Fernando Salema

      It was interesting to read something like “Interviews don’t predict — We looked at tens of thousands of interviews results … and how that person ultimately performed in their job. “We found a zero relationship. It’s a complete random mess” (Source: Google)”. This is information out of context, Google do say that interviews still are good predictors if you control the type of interview, the training of the interviewer and use several interviewers! Anyway statistics, in limit, say what you want if torture data, and in clinical psychology you may find this too many times.

  • Todd Lempicke

    Those #’s are beyond ugly. Median tenure, which has decreased about 10% in just the last 2 years may be part of the issue when using 18 months as the base. On the front end, I wonder if recruiters are too dependent on job postings and resume databases, as opposed to networking and referral generation to tap the less active job seekers. No doubt, if an unstructured interview process was used without collaborative assessment and focus on competencies, it’s a total guessing game.