Calculating the Dollar Costs of a Bad or Weak-Performing Employee

Almost every manager, when asked, readily agrees that weak employees underperform average employees by a significant amount. From a talent management perspective, if the “performance differential” between the average employee and the worst employee is 33% or more, it makes clear business sense to invest in great performance management and recruiting in order to fix or replace weak performers. First, consult with the CFO’s office (the king of metrics) and the COO’s office with the goal of getting them to partner with you throughout the calculation process. With their help, you can avoid any major calculation errors and use their credibility in order to avoid any future criticism from finance professionals. Then, follow these six calculation steps: Determine what an average employee is worth; Determine the “weak performer differential” between an average employee and a weak employee in the same job; Quantify the value of the “weak performer differential” percentage; Determine the “weak performer differential” for other jobs; Add other “weak performer costs” to the calculation; and Determine whether weak performers can be improved quickly and inexpensively. It is surprising that only a few firms have taken the time to calculate the positive performance differential that is provided by top performers and the negative performance differential that the organization suffers because it keeps weak performers. The best approach is one that is customized and acceptable to your CFO and your executives.

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