The Sunk Cost Fallacy: When Throwing Good Money After Bad Hiring Is Just Plain Bad

Ever found yourself deep in a hiring process, thinking, “We’ve invested so much time in this candidate, we might as well make an offer”? Congratulations! You’ve just stumbled into the talent acquisition equivalent of quicksand – the sunk cost fallacy.

In the world of hiring, this cognitive quirk can transform your dream team into a nightmare faster than you can say “You’re hired!” Let’s dive into how this fallacy plays out in recruitment and why it’s crucial to recognize when it’s time to cut bait and cast your line elsewhere.

The Great Candidate Chase: A Recruitment Odyssey

Picture this: You’ve spent months searching for the perfect Director of Innovation. You’ve invested time, money, and enough LinkedIn InMails to crash the server. Finally, you think you’ve found “the one.” But as you near the offer stage, red flags start popping up faster than startups in Silicon Valley.

Do you: A) Cut your losses and restart the search? B) Ignore the warning signs and make the offer anyway because “we’ve come this far”?

If you chose B, congratulations! You’ve just won yourself a future headache and potential exodus of your best talent. Studies show that a bad hire at the executive level can cost a company up to 213% of the employee’s salary. That’s a lot of money to spend on someone who might be better at playing office politics than driving innovation.

Historical Hiring Horrors: Because Hindsight is Always 20/20

1. Yahoo’s Revolving Door: Remember when Yahoo hired Scott Thompson as CEO in 2012? They spent months on the search, only to discover he had lied on his resume about his computer science degree. He lasted 130 days. The lesson? Always verify those credentials, no matter how much time you’ve invested.
2. Uber’s Culture Clash: Uber’s aggressive hiring spree in its early days led to a toxic culture that eventually resulted in the ouster of its founder. The company had invested heavily in recruiting “brilliant jerks,” only to spend years and millions trying to fix the resulting culture problems.
3. WeWork’s Nepotism Nightmare: WeWork’s Adam Neumann hired family members and friends for key positions, despite their lack of qualifications. This contributed to the company’s spectacular fall from grace and canceled IPO. Sometimes, the most expensive hire is the one you know too well.

Breaking Free: How to Avoid Becoming a Hiring Horror Story

1. Set Clear Criteria and Stick to Them: Establish benchmarks for your ideal candidate and don’t compromise just because you’ve invested time in the search. If your candidate is hitting fewer marks than a stormtrooper in Star Wars, it’s time to move on.
2. Use the “Blank Slate” Technique: Ask yourself, “If we were just meeting this candidate today, would we still be excited about them?” If the answer is a resounding “meh,” it’s time to bid adieu.
3. Implement Structured Interviews: Use standardized questions and scoring to reduce bias and prevent the sunk cost fallacy from creeping in. This way, you’re comparing apples to apples, not apples to oranges that you’ve spent too much time polishing.
4. Seek Multiple Perspectives: Don’t let one hiring manager’s investment skew the decision. Involve various team members in the process to get a well-rounded view of the candidate.
5. Set a Hiring Deadline: Give yourself a realistic timeline for filling the position. If you haven’t found the right fit by then, reassess your criteria or search strategy rather than settling for a subpar candidate.
6. Calculate the Real Cost: Before making an offer, calculate the potential cost of a bad hire. Include not just salary, but onboarding costs, potential severance, and the impact on team morale. This can help put your sunk costs into perspective.

The Data Doesn’t Lie (But Candidates Might)

According to a CareerBuilder survey, 74% of employers admit to hiring the wrong person for a position. The average cost of a bad hire is nearly $15,000 – and that’s just for non-executive positions. At the executive level, the costs can be astronomical.

Moreover, a study by Leadership IQ found that 46% of newly-hired employees fail within 18 months. Of these failures:

• 26% fail due to poor coachability
• 23% due to low emotional intelligence
• 17% due to lack of motivation
• 15% due to temperament issues
• Only 11% fail due to lack of technical skills

This data suggests that many hiring failures aren’t due to lack of qualifications, but rather to poor cultural fit or soft skills – factors that can often be overlooked when we’re too invested in a candidate.

Remember, in the talent acquisition game, knowing when to walk away from a candidate is just as important as knowing when to make an offer. The sunk cost fallacy might be a universal human tendency, but armed with this knowledge, you can avoid throwing good hiring resources after bad.