You’re qualified for the job. You might even be doing the same job at a different company. You may have interviewed and if so feel you did quite well. In the end, you don’t get hired. Why?
Because hiring is risky and Risk. Is. Expensive.
Hiring someone entails a substantial risk for a company and that risk carries with it an equally substantial cost. It’s important to understand this because the ability to reduce that risk should be the primary focus of any jobseeker. Doing so helps hiring managers pull the proverbial trigger and make the decision to hire.
Let’s explore this phenomenon through a hypothetical hiring process to be more clear
Company X is growing successfully and generating many millions of dollars a year in revenue. A role opens that company X needs to fill with an external hire. The salary for the open role is $50,000 per year. This hire should be a no-brainer if they find someone fairly well qualified, right?
Not exactly, no.
First, the cost to build the pipeline of talent so the hiring team has a suitable field of candidates to choose from is expensive. Posting jobs on sites like LinkedIn or other niche premium job boards typically costs $200-$600 per posting per site per month.
Since it takes, on average, almost 68 days to hire a salaried employee, this can get expensive if the company is posting on multiple sites for multiple job openings. If a recruiter is used, that’s a far more expensive proposition, with fees typically equaling 15-25% of the hire’s first year salary. In-house recruiters obviously require a full salary and benefits etc. None of this is cheap.
Second, the cost of machines actively reviewing, assessing, and storing applications and resumes, although archaic, is expensive. Depending on the size of the company this can cost anywhere from $1000s to $10,000s per month. Although this cost is usually defrayed across all applicants and roles, there is a definite cost to purchasing and maintaining such services for each role.
Third, the cost of people reviewing applications is expensive. If the company is getting hundreds or thousands of applicants for the role, and they’re not using Uiba, someone has to review them, that someone is being paid a salary whose job title is probably not ‘resume reader’. This is likely an HR person and/or the hiring manager.
The average number of applicants for a corporate job is 250. Each resume takes a couple minutes to read (some are read closely, many are skimmed). So 250 resumes, at 2 minutes per average read time, is 500 minutes (8 hours) of salary paid to review resumes PLUS the 500 minutes (8 hours) of productivity lost because this person was reading resumes instead of doing their normal work.
Fourth, interviewing applicants is expensive. A typical goal when hiring for most salaried roles is to identify 5 strong candidates to interview for the role. Each candidate is likely to have 4-6 interviews, which typically last 30-60 minutes. For more critical roles there may be as many as 12 interviews.
Each of these interviews is a productivity sink for the hiring team. Hiring is of critical importance to the well-being of any organization but team members aren’t hired and paid to interview people, they’re paid to do their primary jobs. Hence, the potential 5 hours of interviewing per team member comes at a significant cost in lost productivity for the team.
Ok that was a little more expensive than expected, but if you want to play you have to play – right? At least the person is hired! So now that $50,000 per year is pretty easy to absorb, right?
That $50,000 salary? Yeah, it’s actually $75,000. Turns out, the average cost of actually employing the person is usually about 1.5x (actually, it’s anywhere from 1.25x to 2.2x) the cost of their salary: $50,000 x 1.5 = $75,000. Where does that extra cost come from?
- FICA taxes (social security and Medicare – this is a 15.3% tax, which the employer and employee split evenly at 7.6%)
- Facilities to house you (office rent)
- Equipment for you to use (telecoms, office supplies, the coffee machine with a mind of its own, etc)
- Corporate support
- Other general overhead costs.
Ugh! Ok, fine… but Company X is earning millions per year, so even paying 1.5x the cost for the work is still doable. Right?
Unfortunately, it’s a bit more expensive than just the hiring costs and the 1.5x cost. It takes a new employee quite some time to come up to speed with the new job. The biggest single hurdle is figuring out the culture and the political dynamics of the organization: who controls what, how do I get my job done, etc.
Everyone at the company is aimed more or less toward the same goal but there are a LOT of competing priorities. On top of that there’s the coming up to speed with the day-to-day demands of the job, the systems and processes, etc. This means it requires about 8 months, sometimes more, until the employee is optimally productive. That’s 8 months of paying for full productivity but not getting it.
Ok but now! NOW we can finally say that $50k, er $75k per year is affordable. Right?!
No. (oh come ON already!!)
Almost half of all new hires turnover in 18 months, which pushes the employer back into the expensive hiring cycle all over again. Plus, there is lost productivity since once more there is no one is in the role doing the work. Often times this creates extra stress on the team taking up the slack, which also reduces some of their productivity. The turnover costs are brutal – typically between 100% and 300% of the salary due to the factors above.
But lets say the person actually stays (woo hoo! Now the $75k is gonna pay off, I just know it!), it turns out most employees end up disengaging from their job. This doesn’t mean they stay home and collect paychecks. It doesn’t mean they show up and play games all day. It means they’re only semi-productive. Web surfing, gossiping, facebooking, etc, – doing all the little things most everyone does while they’re at work because procrastinating is easier or more interesting than doing something hard or dull.
Disengagement stems primarily from an employee being in a role that’s not a good fit, either because they were hired into the wrong role or the role evolved and the employee didn’t, or because their manager is terrible. The manager is usually terrible because they were hired into the wrong role or the role evolved and they didn’t, etc.
The costs associated with disengagement are high – 34% of salary is lost each year. So the $50,000 salary, which remember is actually $75,000, is costing the company $25,500 in lost productivity. If a department has 3 disengaged employees, the company is paying for 3 full time employees but only getting the work of 2 in return.
So let’s recap: you start with the cost to fill the talent pipeline, then the cost to capture and store the applicants, then the cost to review the applicants, the cost to interview, the cost to hire and train them, the cost to employ them, plus the lost productivity while coming up to speed, and finally have to account for turnover and disengagement.
That is why companies are so hesitant to hire people, even when the person has the qualifications. Although this reads like a riff on a Monty Python skit, the reality is genuine and it has an impact on how and why companies make hiring decisions.
The most obvious ramifications of this belabored and expensive process is that hiring managers try to hire from their personal networks and encourage new hires that perform well to refer their networks. Many believe this approach helps de-risk the hiring process. Unfortunately, it doesn’t, it just changes the risk profile. However, it’s a time-honored norm and part of why LinkedIn was able to build a successful business. What it does do is hurt the competitive process, hinders qualified candidates from getting a chance to shine, and helps perpetuate biases.
So, the goal of the jobseeker is to figure out any way possible to prove not only are they a good fit for the role, but they’re a good fit for the team, they’re engaged by the work itself and likely to be focused and productive, and unlikely to be leaving in the near future. We’ll explore how jobseekers can begin going about that in a separate post.