In the investment world, some advise people to consider their holdings with the question: Would you buy this again at the current price? The point is that if the answer is “no” then you ought to sell it. In effect, each day you hold the security you are choosing to repurchase it at the current price. Similarly, some apply this advice to managers in the form of asking: Would you rehire this employee today? The idea is that if the answer is “no” then you should get them off your staff. (One need not immediately terminate them; there are more gentle ways to manage someone out.)
But, just as the question of repurchasing investments is complicated by considerations of taxes, the rehire question also has complicating factors to consider.
The Cost to Replace
If the intent is not to just reduce staff, but really to replace the person with another, better new hire, then one must consider the costs of that:
These include the costs of recruiters and sourcing candidates as well as the time spent by other employees to interview candidates. Ideally, the company has a reasonable idea of these costs and can factor that into the decision.
During the time between when the old employee leaves and the replacement is up to speed, you will suffer a productivity gap. The new hire will presumably take some time before being able to replace the productivity of the former employee. Additionally, after the new employee is hired, some employees will spend time helping get this new hire up to speed, causing a drop in their productivity. Finally, teams naturally take some time to adjust to such changes, and that may lead to a short term productivity drop.
This could go either way. Sometimes morale may increase as a result of seeing a poor performer being let go. But, there’s at least a risk that pushing out this member of the team may hurt morale, with the attendant costs to the company.
There’s always a risk with a new hire that the person turns out not to fit in as all had hoped. So, in replacing a known quantity with someone new you take a risk. While you expect upside, you should acknowledge the downside risks as well.
In some cases, particularly if the company is not doing well, there ought to be other considerations.
- Will you really be able to hire someone better? Struggling companies will typically have trouble hiring top talent.
- Is the problem the work environment rather than the employee? Sometimes it may be that the employee doesn’t seem to be performing well because of leadership, management, or other environmental factors. If those factors are not addressed, a new hire is no more likely to be successful than the existing employee.