Figures vary as to the financial impact of a poor hiring decision on small businesses, but the general consensus is that the cost of employee turnover is high.
Some experts estimate the cost at about 150% of an employee’s annual compensation, with a much higher cost for those in managerial and sales jobs. This means that for a job paying $50,000 per year, the cost of a single turnover in that position may be about $75,000.
Looking at the turnover rate in small businesses is even more revealing.
The turnover rate is expressed as a ratio. It is the number of employees who leave in a year’s time divided by the total number of employees at the beginning of the year. In other words, if you have 50 employees and 10 quit during the year, you have a turnover rate of 20%. If you have a mere five employees, only one needs to leave to result in that same substantial turnover rate.
Why is turnover cost so high?
The cost of turnover includes both the cost of hiring a replacement employee and training that new employee. Some of these costs are obvious, such as paying recruiters to identify candidates.
“Opportunity costs” are what we call the indirect costs resulting from opportunities the company couldn’t take advantage of. These include reduced sales because incoming calls aren’t answered and delays in product development.
When a company is reduced to constant firefighting, it isn’t installing fire-prevention systems, let alone extinguishing embers before they ignite.
How do behavioral assessments reduce turnover costs?
An effective behavioral assessment reveals an individual’s personality tendencies in the workplace and relates these tendencies to the specific position for which he is being considered. The client company provides a customized position description and other input, enabling a comparison of applicant characteristics to those of employees succeeding in the job, the workplace and the supervisor. The assessment matches candidate traits with company requirements and culture.
The assessment does not make the hiring decision—it provides information to aid in the employer’s decision-making process.
How behavioral assessments improve hiring decisions
Behavioral assessments are unbiased. The more an interview veers from a list of standardized questions, the greater the opportunity for bias. Rapport allows for more insight into how the hiring manager and other staff will relate with the individual and the role he will play in the company. It feeds interviewers’ intuition, which is beneficial. However, objective assessments provide a valuable counterbalance to this intuition.
Behavioral assessments contribute traits to probe in the hiring process. The assessment may show that the candidate has most of the characteristics that have been identified for the position but there may still be a few question marks related to the specific job. Is the person sufficiently (or overly) detail oriented? Is he able to work well under pressure? Does he prefer to work independently or cooperatively? The hiring team can explore these issues in interviews with the candidate or with references to confirm the nature of these traits and determine if the job and team can be configured to deal with these traits or if the candidate is a no-go.
Behavioral assessments reduce costs and contribute to success
We tend to think of behavioral assessments as a big-company practice. The larger the company, the more likely it is to spend money on formal processes, including behavioral assessments.
However, this is a big mistake!
The larger the company, the higher the number of other staffers to pick up the slack from an underproducing employee . . . the more ways the company can tweak assignments and team configurations to manage around prickly employees . . . the less impact when an employee quits or is terminated . . . the greater the HR resources available to coach, counsel and discipline problem employees.
Smaller companies can least afford expensive hiring errors. Behavioral assessments are a sound investment in effective hiring and retention.