5 Deadly Hidden Costs to Managers of Firing Difficult Employees
There are 5 deadly hidden costs that most managers don’t think about BEFORE firing difficult employees that come back to bite many of them.
When you have a difficult, disruptive or underperforming person in your team, the standard accepted management response is to remove that person and hire a better one. In my experience “fire them” is the default response many managers arrive at too quickly. There are ton of reasons for this.
Some of the Key Reasons Managers Fire Too Quickly
The cost to the business, the team and the manager of accepting poor performance or disruptive behaviour is very large – easily tens of £’000s for small teams and can head into the £’millions for larger teams. A real example – a sales team of 6 people lost over $100,000 in sales each month while dealing with people issues in the team.
For team members, the costs of problem teammates are in frustration, anger, stress, additional pressure, extra work, lower motivation and feelings of unfairness. All of this can lead to more team members leaving the team and the best ones nearly always leave first. Every person leaving multiples the pressure on remaining team members.
For the manager, any drop in team performance threatens their job security, their standing, their financial rewards and certainly kills any promotion prospects. A manager’s natural psychological response is to do their best to remove the personal threat to them as quickly as possible. This reaction is part of our fight or flight response hard wired into our brains as part of our survival mechanism. The Threat Response nearly always makes the situation WORSE.
Firing Too Quickly is Costly
For economic and psychological reasons, AND because few managers have been taught a more effective approach, firing a difficult employee is often arrived at quickly. This common management action in the business world is very costly to the manager, the team and the business. (see below)
Any manager going straight to removing difficult employees WITHOUT first genuinely and obviously trying to improve the difficult employee risks damaging psychological safety and trust in the team, creating uncertainty, and in some cases creating a culture of fear. ALL of these factors damage and reduce the performance of the team, which can easily cost far more than removing and hiring a new employee.
To Stand Out As A Manager
If you want to INCREASE team performance while resolving the problems AND to really STAND OUT from peers, learn how to create the best conditions to get significant improvement from difficult, disruptive and underperforming staff and only fire as a last resort.
One of the most important factors you should remember is 9 out of 10 staff WANT to do a GOOD JOB. Staff that are not performing or behaving below expectations, have barriers in their way that PREVENTS them improving. As a manager you can remove these barriers 90%+ of the time.
To get team performance INCRESAING, improving an employee nearly always months faster than firing and hiring a new employee. Improving is easier, less time consuming, less risky and less expensive for your business than removing. It makes sense to MAXIMISE the changes of getting improvement.
Before we dive into how to get better outcomes, lets cover the true cost of firing and replacing employees.
Two Obvious Costs of Removing Employees
1 – The Cost To Remove A Problem Employee
The time and effort taken by the manager and HR to remove a person is a significant cost that will not show on any P&L statement. Even in countries where it is easy to fire staff, there is a time and effort cost. Think of all the hours and days you might spend preparing a case, persuading your bosses and HR to give you the go ahead and then HR preparing all the documentation etc.
In plenty of countries, the employment laws require the company to demonstrate the employee’s behaviour or performance is below expectations and below the level equivalent colleagues are performing/behaving at before removing them. This can create weeks to months of delays and suck up a lot of management and HR time.
It makes complete sense to combine this legal requirement into a genuine process to try to get significant improvement from the employee. This makes much better use of management time. Use a good system and any manager with reasonable people skills will often get good improvement from the individual.
Alternatively, companies often make addition payments or use redundancy to remove problem employees more quickly using less management time. While additional payments can seem large – into the tens of £’000s in many cases – these costs are often substantially LOWER than the management time and effort costs to remove individuals who are very unlikely to improve.
2 – The Cost Of Hiring A Replacement Person
The obvious cost is the recruitment fees paid to recruitment agencies and any difference in salary between the new person hired and the old person removed.
There are three important costs to replace staff, which managers don’t consider as carefully as they should, being:
The time and effort cost of going through the hiring process, the interviews, tests, and onboarding administration. There is also the cost of distraction for the manager – they could be working on directly on activities to improve team performance.
Hidden Cost 1
The training time needed when a new person joins the team. The lower the skill of the person, the quicker and cheaper these training costs are. For highly skilled joiners – even those that already have the skills to do the job – the training costs are training the person on new systems, on where to find information, on what the specific company processes are etc. The training costs are often more expensive than the recruitment fees paid out.
Hidden Cost 2
Getting up to speed costs. Any person new into a role will take time to become fully productive. I have seen research showing this can be anywhere from 3 months to nearly 12 months, depending on the complexity of the role and the skills match between person and role. The getting up to speed cost is the period where the person’s salary is higher than the profit they produce for the business. This typically ranges from 3-5 months in most semi-skilled jobs and upwards.
All of these costs are usually add up to several tens of £’000s and more
What the Studies Show
Studies also show that the cost of replacing an employee depends upon their position and skill level.
- An entry-level employee being replaced costs between 30% and 50% of their annual salary to replace. For someone being paid £30,000, the costs to replace would be approximately £12,000
- A mid-level employee turnover costs between 50% and 150% of their annual salary to replace. The cost to replace someone being paid £60,000 would be approximately £60,000.
- A high-level or highly specialized employee costs up to 400% of their annual salary to replace. The cost to replace someone being paid £100,000 would be between £150,000 to £400,000.
The more senior or skilled the position, the larger the costs. These costs are SMALL compared to the cost of dropping team performance.
The Most Deadly Hidden Costs To Managers Firing Difficult Employees
There are three deadly costs managers should consider when they take action to remove people problems from their team. These are:
- The short term damage to team performance
- The performance cost of damaging team trust from unfair firing
- Finally, the delay to increasing team performance
Taking each in turn:
Hidden Cost 3 — The short term damage to team performance
When you fire a team member, your team’s performance will reduce in the short term through:
- Dropping morale. The prospect of increased work and potential job insecurity reduce team morale.
- A drop in trust and increased uncertainty, which reduces team performance. Removing team members creates fear that the same could happen to any team member. Imagine the impact on trust and safety if there was little warning a person would be fired?
- Changes to how work is distributed within the team. Each remaining team member needs to work harder to maintain team output because the team has less people.
- Teamwork is disrupted, as the established workflows and team dynamics change with a person missing.
As mentioned earlier, the short term cost to a 6 person sales team was a drop in sales of over $100,000 per month. The costs from drops in team performance can be eye-watering.
If you don’t take the right actions to address team fears and the above disruptions, the short term performance damage can become permanent and keep get worse. This is every manager’s nightmare.
Hidden Cost 4 — The performance cost of damaging team trust from unfair firing
Firing a team member can have a big impact on team trust and security. If the person was fired with little apparent warning, the rest of the team will be thinking that could happen to them at any time. They spend a lot more time protecting their job rather than focusing on hitting team targets. The risks and ownership team members are willing to take drops. Teamwork drops. Team performance drops as a result. Think in terms of tens of £’000s in lost profitability as a minimum.
If team results and output drops, so does the manager’s job security, standing, reputation and promotion prospects. The costs of losing team trust are big for both manager and company.
Using a proven system to manage the difficult employees will keep and increase the team’s trust in you. You should use specific steps to reduce the fears and concerns of other team members.
Hidden Cost 5 — the delay to increasing team performance
As soon as you lose a team member, the rest of the team needs to work harder to produce the same level output (with less people). This creates more pressure, more stress and less enjoyment for the whole team.
The manager has to work hard to keep team members happy and motivated. The longer the shortage of staff continues, the more tempting it will be to leave the team for an easier job elsewhere. Lose more team members and your problems multiply.
With all the managers focused on keeping team members, increasing team performance is put on hold until the team is up to full strength and the new person is settled into the team.
In the UK, this delay is likely to be 3 – 6 months. In the US, with more relaxed labour laws expect this time to shrink to 1-3 months depending on recruitment time. In Europe, this delay might be 3-9 months as labour laws are generally much stricter. Bringing in temps for periods of less than three months can often increase the stress and pressure on current team members rather than help (unless the job is low skilled allowing joiners to get up to speed quickly).
Improving Beats Removing Hands Down
The lost of team productivity and performance between when removing and replacing team members can easily dwarf all the other costs put together.
This is why improving individual performance or behaviour or both is by far the quickest, easiest, cheapest and least risky way of INCREASING team performance.
It makes a huge amount of sense to create the right conditions to maximise the improvement you are likely to get in any people problem situation
By improving the problem person, you are avoiding all the time and effort costs that go into removing and finding a replacement. You are avoiding all the time and effort spent training and getting the new person up to speed. You are avoiding all that work that needs to go into recovering and maintaining team trust, motivation and psychological safety after a team member is removed.
By trying hard to get improvement with a problem employee, the rest of the team will feel safer and will TRUST YOU MORE, even if you have to ultimately remove the individual.
By first working to improve an individual before considering removing them, you are ten times more likely to INCREASE TEAM PERFORMANCE in the short term and the long term. You will have the trust, goodwill and respect of all team members. They will be a lot more open with you and a lot more focused on activities to reach team targets.
For all these, reasons, the team will perform a lot better.
The Benefits For You Personally
When you can consistently increase team performance with any team, you are going to be in very high demand as a manager. This means better jobs, with better opportunities. You gain great status and appreciation. You get more pay. Your team size will grow, and you will get promotions faster than your peers.
The best way to learn how to consistently resolve people problems quickly and effectively is to use a proven system. That is a set of steps and activities that MAXIMISES the chance of getting improvement AND makes it easier and quicker to remove a person if they don’t improve. Most important of all, a proven system and approach will maintain and improve the performance of the team during the process, thus avoiding costing your business tens to hundreds of £’000s in lost team productivity and profit.
Using a system will consistently get you the best results you can in the situation for you, for your team and for your business.
I invite you to take a look at our How to Manage Difficult Employee course. This teaches how to use a proven and comprehensive system to remove people problems quickly, easily, and cheaply.
Learn how to use this system well and you will never again worry about managing difficult, disruptive or underperforming team members and you will always know exactly what to do to get improvement from them quickly.
Click below to learn how this course will help you right now and for many years to come.
