Dealing With Bad Hires: The “No-Fault Divorce” Option

According to Jerry Seinfeld, 95% of the population is “undatable.” Even after months and years of “assessment,” nearly 50% of the marriages in California end in divorce. But at most firms, 100% of new hires are assumed to be good hires! Recruiting is at best a hit-or-miss operation. Even the best-designed recruiting systems have ample opportunities for misjudging candidates and thus producing bad hires. Why? First of all, candidates misrepresent themselves on their resumes (often more than 50%). Because they exaggerate their experience and are on their “best behavior” during interviews, it’s easy to misjudge a candidate. Second, from the company perspective, we also make errors. Companies often skip or do ineffective references. And let’s face it, managers are not always the best “judges” of talent. Yet despite all of the many “potential” errors in the system, recruiting managers continue to operate recruiting systems based on the false assumption that everyone they hire is a good hire! What Percentages of All Hires Are Mistakes? Management expert Peter Drucker has said that as many as one-third of hiring and promotion decisions are outright failures. One large HR research study found that only 46% of HR managers thought that the hiring process identified qualified candidates. And last, when you survey hiring managers, it’s not unusual for more than 25% of them to be unhappy with the hiring process. My own experience indicates that, on average, 25% of all hires are bad hires — either due to a lack of skills or as a result of bad placement. Yet almost all hiring processes are built on the premise that every hire is a good hire. Because most systems assume a zero failure rate, there is usually no formal feedback mechanism that tells or educates the hiring system when a hiring mistake is made. Under most systems, even upon close examination, it’s hard to really tell what the actual “bad hire rate” is, because few companies actually track the failure rate of new hires or even connect employee terminations with the hiring process. Others lack the courage to “fire” their bad hires, so these poor performers may become a multi-decade drag on the firm. It’s time to connect the dots: Assume some percentage of your hires are no good! We know from six sigma and other quality assurance programs that some percentage of all processes include errors. Why recruitment managers assume that recruiting processes are somehow exempt from errors is beyond me. But the fact remains that nearly every hiring system fails to:

  • Track the performance (or “quality”) of their hires after performance appraisals are completed to see which hires were a mistake.
  • Study those who quit within the first year to see if the recruiting process was at fault.
  • Study those who were fired within the first year to see if the recruiting process was at fault.
  • Survey new hires and managers within the first six months to see if their new hire was a good fit.
  • Identify which sources and screening processes produce the best (and worst) hires.

“No-Fault Divorce”: One Solution to Bad Hiring If you don’t have the time or inclination to identify and fix errors in your hiring process, you might consider another approach that I call “no-fault divorce.” This no-fault divorce process has, as far as I know, only been used at one major firm (Cisco), but the concept is simple to understand and it’s relatively easy to implement. It starts with the assumption that errors in hiring will be made. But instead of ignoring them, it provides a mechanism for immediately addressing bad hires. Under the “no-fault divorce” process, all new hires are tracked for their six months on the job. If performance appraisals, actual job output data, or the manager’s subjective assessments indicate that a new hire isn’t “working out,” then the new hire is offered two opportunities. They are allowed to:

  1. Quit right now, with a “good” reference and with a one to three month severance package to ease the transition. (Incidentally, accepting the package eliminates their right to sue.)
  2. Agreeing to a three to six month performance improvement plan. If that plan fails, they will be terminated (with a negative reference and no severance).

Although offering a severance package might seem like rewarding “failure,” it is in fact a high return on investment (ROI) option. This is true because the cost of keeping (and perhaps eventually firing) a bad performer is much higher than the cost of admitting your mistake early and moving on. Most companies have found that weak performers are unlikely to make dramatic improvements after their first six months on the job. The cost in additional training, management time, bad morale and poor customer service as a result of keeping weak performers on the job for an additional six months will easily exceed the cost of any severance you might offer. Additional Reasons for Offering “No-Fault Divorce” Other reasons for providing new hires with a bail out option include:

  • You allow them to avoid being fired and earning a bad reference.
  • By offering a severance option you can limit lawsuits.
  • You allow them an opportunity to “opt-out” of a bad situation early, before becoming further frustrated with a bad job “fit” that might eventually force them to voluntarily quit (while still earning a bad reference).
  • Having the no-fault divorce as an option may also encourage potential candidates to accept your company’s offer, because they know that even if they fail in the job, they will have several reasonable “outs” available to them.

Conclusion Rather than putting your head in the sand, consider the no-fault divorce process as a proactive and realistic approach toward identifying bad hires. It assumes that we make errors and it attempts to identify them early on. The “no-fault divorce” process also assumes that part of the reason for a new hire’s lack of success might have been the company’s responsibility. Rather than get into a protracted fight about whose fault it is, the no-fault divorce process encourages early identification and resolution of the problem. Whether you choose to try to “no-fault divorce” process or not, the first lesson to be learned is that no matter how hard you try, a minimum of 10% of the people that you hire will be bad hires!

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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