When considering when to hire and when to fire I try to keep in mind that:
1) It is cheaper to keep a good employee than replace a good employee;
2) It is more expensive to keep a bad employee than replace a bad employee;
3) It is more expensive to find a good employee than a bad employee.
The cost of turning over an employee (including the search, interview, down time and training time) is about three times as much as the employee’s salary according to Angela McNerney, President of Tech Valley Connect.
Jack Welch, the former (and eccentric) CEO of General Electric is famous (or infamous) for putting a policy in place that requires the company to fire 10% of its employees each year. This would seem harsh as an informal policy. It is made all the more so because it is a formal policy. If you remember that GE’s policies are publicly known, you realize these polices are part of GE’s PR campaign whether they like it or not!
In reality, as most HR directors know, in our post 1950’s-black-suit-IBM-clone-employee world, a 10% attrition rate for a company like GE is not that uncommon. Much has been written about Jack Welch’s seemingly harsh firing policy.
According to Monster.com, 82% of surveyed employees updated their resumes in the past six months. Bernadette Kenny reports in “Forbes” magazine, any rate below 15 percent annually is considered healthy, even for small businesses. Considering the cost of replacing good employees, turnover is natural, but you will want to get it right the first time.
In the 10 years I have spent working with small business, including my own startups, I came to dread the pain that comes with hiring; that is until I learned one simple thing.
I realized that the hiring process was not over the first day an employee came in to work. Once I realized that, I was able to set expectations. Based upon those expectations, I was able to confer with new employees and determine whether or not they were meeting them. If they were not, we would shake hands and walk away. I would usually offer about a week’s salary as a goodbye present.
The value of identifying a bad fit early is incredibly more valuable than one week’s pay. Current employees appreciated the fact that we were building a team, and I was not going to waste time or disrespect them by shortcutting the team building process.
The results were instantly clear. Out of 30 hires, 19 left within the first 90 days (11 of those left within the first 30 days) but the rest became long-term, highly-valued members of our team. All have since moved in to middle or upper management in relatively short periods of time.
All this leads me to another adage that I consider sacrosanct:
The hiring process should be considered:
1) 25% over the first day of work;
2) 75% over day 30; and
3) Complete on day 90.