By Dr. John Sullivan, Head and Professor of Human Resource Management College of Business, San Francisco State University

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Why are you assuming firing bad employees costs you money? It saves you money if you do the calculations right.

Super star employee produce as much as 3X more than poor performers and sometimes there is no pay differential (assuming you don't have pay for performance) between the best and the worst employees.

Bad employees have huge costs in that they impact customers, attraction, retention and teamwork.

Good workers resent them. "A" players don't want to work with "C" players. And C players never hire A players. Bad managers cost the firm even more. Lawyers often try to "scare us" into not firing people but in fact the number of "fires" that result in litigation is quite small. By firing poor performers you will energize the best performers and that will make you enough money to more than make up for the costs of the few cases that do go to litigation.

The cost of a "bad employee" that happens to be a software engineer can exceed a million dollars per year!

Facts About Bad employees:

• Every slot filled by a bad employee can't be filled with a great employee. And without great employees you won't have a great company.
  
  
• Great ideas and products don't come from bad employees.
  
  
• Everyone has some poor employees but poor employee relations systems will result in a higher proportion of "turkey" employees than a World Class one.

Increased management time and effort

• Bad employees require "high maintenance" and more management attention and worry.
  
  
• Time spent on "problem" employees can't be spent on the best employees.
  
  
• Bad employees who happen to be in management and team leader positions have a multiplier effect on the productivity of others.

Training time and costs

• Bad employees, because they lack competencies, must attend more remedial training.
  
  
• The time Bad employees spend in training slows their "time to productivity"

Customer satisfaction and error rates

• Bad employees send a message to our customers we are getting weak or we don't care about them.
  
  
• Errors by Bad employees lose us sales volume and occasionally customers

Product development

• Bad employees have fewer ideas and bad ideas that distract us from where we really need to be going.
  
  
• Time To Market is dramatically impacted by the disruption caused by their bad ideas and questions and because they do not fit well into in a team of "winners."
  
  
• Trying to humor them or not hurt their feelings when they don't understand what the rest of the team is trying to do wastes time and energy. We answer their questions and politely try to help them come up to speed, when this help wouldn't be necessary if they "got it".

Our competitive advantage

• When we employee a bad employee that is one bad employee that our competitor can not now employee by "mistake".
  
  
• A bad employee takes up a spot on the team that can't be taken by a superstar. These are called opportunity costs.
  
  
• Bad employees send a message to our competitors we are getting weak. This might encourage them and improve their own confidence / image so that they become bolder in the product market.
  
  
• Bad employees produce less per dollar of cost (salary). Since typically 60% of all corporate budgets go to employee expenses that makes the inefficient use of these funds a major corporate weakness.
  
  
• Hiring Bad CEO's and top managers can adversely impact our stock price and the willingness of others to partner / merge with (or invest in) us

Other employee's productivity

• Superstar employees often resent being on the same team with "losers".
  
  
• Team productivity can suffer due to lost time helping the weaker bad employees.

Our image and PR

• Bad employees send a message to our competitors we are getting weak.
  
  
• Bad employees send a message to future recruits that we are not a selective employer.
  
  
• Bad employees send a message to our current employees we are headed down hill.
  
  
• High turnover rates due to Bad employees sends a message to other recruiters and potential applicants

Fill in time

• Bad employees may have increased absenteeism and tardiness.
  
  
• When Bad employees are in extra training sessions someone must fill in for them.
  
  
• During the "gap" between the termination of the bad employee and the hiring of a new one there must be fill in help.

Out of pocket costs

• Ad costs for recruitment as a result of having to hire a replacement employee when you finally fire the bad employee.
  
  
• Bad employees often cost the same in salary and benefits as great employees but their Return on Investment is much below that of a great employee. (For example for an excellent employee the revenue generated can exceed their salary by at least 5 times while a poor performer can generate a net loss in revenue.).

HR time and image

• Increased disciplinary costs as a result having to "fix" Bad employees.
  
  
• Added recruitment time and interview time as a result of having to replace a Bad employee.
  
  
• More paperwork, files and documentation as a result of having to punish a Bad employe.
  
  
• Poor HR work is seldom more visible than when we fail to fire a bad employee. It loses the trust we have built up and the bad image often "spreads" beyond employee relations to the rest of HR.

What we need to do (and be able to prove it) is to employ and retain the "best people."

Better employees;

1. With more competencies. Both competencies that we need now and will need in the future.
   
   
2. Who are agile, can multi-task and can shift rapidly to new problems and jobs.
   
   
3. Who self-develop, are continuous learning individuals and do so without the need for company training.
   
   
4. Who have more ideas that are implemented and that impact our profitability.
   
   
5. That require no or "Low maintenance" from managers. These employees have a lower error rate, number of disciplinary incidents and absenteeism rates then other employees.
   
   
6. That have a higher customer satisfaction, higher performance appraisal scores, bonus rates, forced ranking scores and promotion rates.
   
   
7. That inspire and train others to be more productive.
   
   
8. That stay longer before quitting.
   
   
9. Who produce more return for every dollar of salary paid them

It's that simple -- bad employees cost us a bundle and great ones make us rich.

© November, 1998

by Dr. John Sullivan

Click here to email Dr. Sullivan
Head and Professor of Human Resource Management
College of Business, San Francisco State University

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