Human Resources News & Insights

How much are your toxic employees costing you?

A lot’s been written about how much a bad hire (one you terminate and replace quickly) costs companies. But a group of researchers has taken that concept a bit further — examining how much letting a toxic employee stick around costs employers. 

The answer? The estimated savings from firing (or avoiding the hire of) a toxic employee is $12,489. And that figure only factors in the person’s “induced turnover” cost — or the expense of replacing additional workers lost as a result of having the toxic worker on their team.

For the purposes of this new research, a “toxic” employee was defined as someone who commits an egregious violation of company policy — examples include sexual harassment, workplace violence, falsifying documents, fraud and/or general workplace misconduct.

What the cost estimate didn’t take into account is the potential cost of legal problems, regulatory penalties or reduced employee moral from keeping a toxic employee on staff.

This data comes from a Harvard Business School working paper, entitled “Toxic Workers,” for which the authors, Dylan Minor, a visiting assistant professor at the school, and Michael Housman, a workforce scientist in residence at hiQ Labs, analyzed the organizational performance of more than 50,000 employees from 11 companies.

A far more shocking stat

As interesting as that cost figure might be to employers, this finding may be the most head-turning from Minor and Housman’s research: The cost savings from dumping a toxic hire is more than double the monetary gain of making a stellar new hire.

Their research concluded that employers receive a monetary gain by hiring a stellar worker of $5,303 over and above what an average worker would produce.

Bottom line: “… avoiding a toxic worker (or converting them to an average worker) provides more benefit than finding and retaining a superstar,” Minor and Housman said.

The productivity factor

Their research also found that your most toxic employees can also be some of the most productive in terms of their own output. This is the reason they’re hired in the first place and are able to stick around.

But Minor and Housman said, “This performance finding suggests that toxic workers are similar to what Jack Welch described as ‘Type 4’ workers — those who deliver on the numbers but do not have the right values.”

They then pointed out that Welch preached the need to remove these workers, despite the difficulty in doing so because of their productivity.

Minor and Housman went on to cite other research, published by the Harvard Business Review, which found a policy that removed “big shots” and “tyrants” seems to lead to a more productive organization in general — due to the uplifting effect removing toxic workers would have on the rest of the workforce.

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  • JennT

    So, how do you oust the toxic employee, if the boss doesn’t mind them, and even tends to be a little toxic, themselves?

  • Joey

    Finding and replacing a superstar is hard but if done right and well placed the results for a company can be a lot more than as stated. The question is if you really need a superstar. For a lot of work you don’t. There are some skilled fields however where a super star doesn’t simply mean someone who can do the work of two or three people. In that case you’re not saving yourself much by trying to hire two or three people most of the time. There are exceptions in certain fields where a single hyper productive person over many fields can be extremely cost effective. These are commonly sought in start ups. Where you do have problems are the skilled areas where a superstar can come up with things that even ten people can’t. It’s a matter of the nature of the work.

    There is no rule that superstars have to be toxic but the position they often earn is one where they might be able to cause more harm. In regards to the article on A and B players, it’s not really good to make is an either or thing. Each are important and need to be well placed. If you stack the deck with A class then there’s often not enough to go around. If you give an A class B class level of work and responsibility it’s simply not going to be enough and they will reach for more. If you give B class an A class responsibility they’re unlikely to handle it. If you have only B class they lose the benefit of an A class being able to fill in all the gaps, provide direction and training.