What Your Toxic Employees Are Really Costing You

Rock Star employees make a huge positive impact and help to increase the valuation of the business.

That’s why finding a Rock Star is the goal of every hiring manager.

But is that really a good strategy?

Should organizations be focused on the positive? (i.e. finding the Rock Stars) 

Or are they better served trying to avoid the negative?

This article is part of a series that is dedicated to finding a greater understanding of the contribution of human capital assets (people) to the overall valuation of a business enterprise. 

Afterall, the value of a business is a function of how well the financial capital and intellectual capital are deployed by the human capital.

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In earlier chapters of this series we discussed the impact of Rock Star employees and how to identify these folks from the group of candidates.  

In this chapter of The New ROI: Return on Individuals, we explore "the dark side" and discuss the real cost of toxic employees.

It's All About THEM

When we talk about toxic employees, we're talking about more than just a distracted employee who's perhaps spending some time at work on Facebook; or a disengaged employee who is perhaps spending too much time at work on CareerBuilder looking for their next job.  We're talking about the employees who are actively trying to get their colleagues to disengage, or worse.

Toxic employees don't care about a company's goals, nor do they care about building relationships with co-workers. More than just self-centered office bullies, toxic employees are actually strategic and covert.

A recent study by Michael Housman and Dylan Minor published in the Harvard Gazette defines a "toxic" employee as:  "a worker that engages in behavior that is harmful to an organization, including either its property or people." 

The data suggests that toxic employees drive other employees to leave an organization faster and more frequently, which generates huge turnover and training costs, and they diminish the productivity of everyone around them.

To gain some additional insights behind the research, I spoke with co-author, Dr. Michael Housman.

According to Dr. Housman:

“Behavior is contagious... we find that when a toxic person joins a team, others are more likely to behave in a toxic fashion.”

Although not part of the Harvard study, Minor was quoted as saying: "Client-customer surveys indicate that toxic workers “absolutely” tend to damage a firm’s customer service reputation, which has a long-term financial impact that can be difficult to quantify."

The Harvard Study also estimated the value of finding a "Rock Star" -  defined as workers in the top 1% of productivity, as compared to the value of avoiding a toxic worker.  

According to the findings, by avoiding the hiring of a toxic employee, companies will save an average of $12,489 through the avoidance of potential litigation fees and avoiding a reduction in employee morale, among other things. 

The table below compares the cost savings associated with the hiring of a Rock Star as compared to avoiding the hiring of a toxic employee. 

The findings show that avoiding a toxic employee generates returns of nearly two-to-one as compared to those generated when firms hire a Rock Star.

This suggests more broadly that "bad" employees may have a stronger effect on the firm than "good" employees.

To further my understanding of the impact of toxic employees, I visited with Candida Seasock, founder of CTS & Associates.  Candida has successfully assisted management teams ranging from Fortune 500 corporations to emerging growth companies through her award-winning approach “Growth Path to Success.”

According to Candida, companies make the mistake of hiring potentially toxic employees by not focusing on hiring to fit corporate culture.

"Skills can be taught or developed, but honesty and integrity are found from within" she says. Candida also warns that some of a company's earliest hires might not be the best fit as the company grows.

"Holding on to employees who are resistant to change and growth, can result in toxic behaviors as those employees try to survive," she says.  

This can be a costly mistake.

According to this article by Jeremy Goldman in Inc., the cost of keeping the wrong person can be up to 15 times their annual salary.  

The impact to the company includes the following:

  1. Losing great employees that quit because they don't want to work with a toxic employee anymore;
  2. Customers / clients won't work with you because of their experience with the toxic employee;  and
  3. New Rock Star employees won't join the company because they've heard bad things about the company's culture. 

(Is Sheldon Cooper of The Big Bang Theory toxic?)

The fact that toxic employees are costly to the firms that employ them isn't really much of a shocker, but there is a little bit of irony that is derived from the research.  Specifically, the Harvard Study also found that:

Toxic employees are much more productive than the average employee.

This helps to explain how superstar athletes who are bad in the locker room or have 'off the field issues' for example, can remain with their teams, and why toxic employees can remain with their organizations.

Dr. Housman notes, however, that “while toxic employees are more productive, meaning getting more things done, the quality of that productivity often is less than desirable.“

Organizations are often confronted with the situation where they need to decide whether to terminate a high-performing toxic employee for the betterment of the team's morale.  How many are able to do that, as compared to looking the other way because the employee's "numbers were just too good?"

Candida says that "the toxic employees are top performers because they've literally become know-it-alls.  As a result of their behaviors, they pick up valuable pieces of information along the way."

But these behaviors can only be tolerated up to a certain point.

(Is Dr. Gregory House toxic?)

Productivity or Toxicity?

Presented with the apparent correlation of high productivity among the toxic employees, the Harvard researchers explicitly examined the trade-off in increased productivity vs. the propensity for toxicity.

As it turns out, avoiding toxic workers is still better for the organization in terms of net profitability, despite losing out on a highly productive employee. 

Avoiding a toxic employee (or coaching them up to become an average employee) enhances performance to a much greater extent than replacing an average employee with a Rock Star.

What role does management play in creating or fostering a toxic environment? According to Dr. Housman, even when management teams are not contributing to the toxic behaviors, he says that:

“By not policing toxic behaviors, management can create an environment where people feel that they can ‘get away with’ behaving badly.”

Clearly it's best to avoid hiring a toxic employee in the first place, but if you've got them in your midst, Candida recommends that the toxic employee either needs to be terminated or isolated.  For management teams that just can't give up the high performance, Candida emphasizes the need to "recognize the toxic behavior and separate the toxic employee from the rest of the workforce by letting them focus on what they're really good at."

But at some point, the toxic behavior outweighs the high performance. 

Afraid to cut the cord?  Wondering if removing a toxic "superstar" really pays dividends?  Here's an example of a Philadelphia-area company that proves it.

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About the Author:

Dave Bookbinder is a Director of Valuation Services at EisnerAmper where he helps his clients with the valuation of businesses, intellectual property, and complex financial instruments. 

More than a valuation expert, Dave is a collaborative consultant who serves companies of all sizes, both privately held and publicly-traded. Dave lends his business experiences to help people with a variety of matters. 

For future insights and articles, connect with Dave on LinkedIn, like him on Facebookfollow him on Twitter#NEWROI and subscribe to his blog at HuffPost

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Views and comments are my own.

About the Collaborators:

Michael Housman is the Workforce Scientist in Residence at HiQ Labs where he mines publicly-available data for insights that allows large employers identify employees that are potential flight risks and take actions that will help retain them.  He has published his work in a variety of peer-reviewed journals, presented his work at dozens of academic and practitioner-oriented conferences, and has had his research profiled by such media outlets as The New York Times, Wall Street Journal, The Economist, and The Atlantic. You can follow Michael on Twitter @MichaelHousman and on LinkedIn.

Founder and President of CTS Associates, LLC, Candida Seasock is an innovative business adviser. Specializing in enabling client growth and management success through internal executive teams and/or Advisory Boards that support vision, innovation, change that supports operation, finance, and technology and employee growth.  Ms. Seasock is best known for her work in building high-value market recognition for mid-size companies.  She rejects the transactional mentality in business and refrains from working with companies that do not value and respect the inherent human aspect with employees and customers.  To confirm Ms. Seasock’ s approach, many of her best clients have achieved Fastest-Growing company awards.  Candida can be contacted at pjscts@comcast.net.

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Copyright 2016 Dave Bookbinder

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