The (High) Cost of Underperformers

By January 22, 2014 No Comments

worker goofing offUnderperformers can cost you.  Big.  Staff who conspicuously slack off don’t last longer than a few abysmal performance reviews.  But when it comes to weak employees, the openly insubordinate are in the minority.  Most below average employees may exhibit strengths in critical areas, but turn up lacking in ways that seem minor at a glance.

HR thought leader Dr. John Sullivan suggests that it doesn’t make business sense to invest in performance management programs for staff when the differential between the lowest and the top performers is small – given, of course, that your top performers are actually doing well in terms of meeting and exceeding goals and expectations.  But when that gap is larger, the cost to your bottom line can be great and training is most certainly in order.

Sullivan outlines a six-step process to estimating the monetary costs associated with bad or weak performers:

  1. Identify an average employee with regard to performance and determine their worth, or the results they bring about.  Mathematically speaking, this is average revenue per employee divided by number of employees.  For illustration purposes, let’s set this at $100,000 for a sales role at Company ABC.
  2. Determine the “weak performer differential,” being sure to measure one employee against another in the same position so that responsibilities and expectations are equal.  Compare your average employee with the lowest performer – in this case, we’ll say he produces 30% less than average.
  3. Multiply the percentage difference by the average revenue per employee.  Using the above figures (100,000 times 0.30), Company ABC incurs a cost of $30,000 per year for holding onto their lowest performer.
  4. Perform this calculation across other functions, using data from performance reviews or other key performance indicators where hard-and-fast performance measurements aren’t so easy to come by.  Take into consideration that some jobs – such as those requiring creativity and innovation – will have a higher performance differential.
  5. Add other “weak performer costs” to your measurements if you want to make your calculation more sophisticated.  This could include accidents, absenteeism, negative team impact, theft and customer satisfaction (or lack thereof).
  6. Consider whether the performance of your below-average employees can be improved quickly and inexpensively, through coaching and training.  If an intervention doesn’t yield significant results after six to 12 months, you may have solid grounds for dismissal.
Published by Conselium Executive Search, the global leader in compliance search.  

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