When we think about the cost of a bad hire, we usually picture the obvious disaster. Someone is recruited, it becomes apparent quickly that they are the wrong person, performance problems emerge, managers become involved and eventually the employment relationship ends. The organisation then must recruit again. It is painful, visible and relatively easy to recognise as a poor hiring decision.
But there is another recruitment outcome that may be considerably more expensive over time, and unlike the obvious mishire, it may never be identified as a hiring failure at all.
It is the employee who is good enough.
Consider a business recruiting someone into a position paying $100,000 a year. For the purposes of this example, assume that the right hire delivers 100% of the performance reasonably expected of someone in that position.
Importantly, 100% does not mean a superstar, a perfectionist or someone working unreasonable hours. It simply means someone who is reliable, technically competent, respectful, contributes positively to the team, wants to do well and delivers the level of performance the organisation reasonably expected when it decided the position was worth $100,000.
Across an organisation, measuring the exact financial contribution of every employee is almost impossible. A salesperson may directly generate revenue, but someone else has to deliver the product or service, another employee may provide administration, someone manages the business and others perform functions that make the sales possible. For that reason, salary can provide a simple and conservative proxy for expected productive contribution across the organisation.
Now imagine that instead of recruiting someone who performs at the expected level, the organisation recruits someone who consistently operates at around 75% of expectations.
They are not a disaster, and they are reliable, they are pleasant and they do their job and nobody complains about them. There is no disciplinary process and no reason for management to seriously consider terminating their employment.
But the organisation is paying $100,000 and receiving something closer to $75,000 worth of the contribution it expected. The hidden cost of that hiring decision is approximately $25,000 a year and it’s recurrent. If that employee remains for three years, the productivity shortfall becomes approximately $75,000. Over five years, it becomes $125,000.
And here is the important part.
That $25,000 or $75,000 does not appear anywhere on the profit and loss statement.
There is no accounting category called poor recruitment decisions. There is no invoice for mediocre performance. There is no line in the annual report identifying the financial impact of hiring someone who performs below expectations.
The entire $100,000 simply appears under wages and salaries. This is commonplace as the Society for Human Resource Management’s
2025 benchmarking research found. Their research found that only 20% of organisations track quality of their hiring decisions.
This is one reason the cost of a poor hiring decision can be so difficult for businesses to see.
A genuine mishire is different because something usually happens. Managers become involved, customers may complain, colleagues become frustrated, performance management begins and eventually the employee leaves or is terminated. The problem attracts attention.
The mediocre employee may attract none.
In fact, an obvious mishire who leaves after three months could ultimately cost less than an employee who quietly operates at 75% of expectations for five years.
For a small business, that matters enormously. When there are ten or twenty employees rather than thousands, one person consistently performing below expectations represents a meaningful percentage of the organisation's total productive capacity.
It also explains why businesses can underestimate the value of investing in a better recruitment and selection process.
The cost of improving recruitment is visible. Whether that involves better screening, structured interviews, reference checking or psychometric testing for recruitment, someone sends the business an invoice.
The cost of mediocre recruitment decisions is largely invisible.
It simply disappears into wages, management time, lower output, additional supervision, missed opportunities and performance that could have been better.
The objective of a good recruitment process should therefore not simply be to
avoid hiring terrible people. It should be to increase the probability of identifying the person who will deliver the level of performance the organisation needs.
That means gathering evidence from several sources, comparing candidates systematically and looking for convergence across the information available rather than relying heavily on one interview or one person's judgement.
A poor hiring decision does not always result in an obvious mishire. An employee who performs at 75% of the level reasonably expected may remain with an organisation for years, creating a substantial productivity shortfall that never appears separately in the accounts. Their full salary simply remains recorded under wages and salaries. Improving recruitment therefore involves more than preventing disastrous hires. It means increasing the probability of selecting people who will consistently deliver the level of performance the organisation reasonably expected when it created the role.
The cost of improving recruitment is visible. The cost of getting recruitment wrong often isn't. If you would like to discuss how psychometric testing can add another source of evidence to your recruitment decisions, contact
Fermion.
The focus of Fermion is
"Psychometric Testing for Recruitment" and
“Recruitment to Retention: How to Select Good Staff & Keep Them”. If you would like to learn how to select good staff and keep them, please
contact us at Fermion.
“Learn from the mistakes of others. You can’t live long enough to make them all yourself.”
Eleanor Roosevelt.
