The High Cost of Caustic Workers

A new Harvard Business School paper attempts to put a price on the cost of keeping toxic employees in organizations. Spoiler alert: It's steep.

By Mark McGraw

There's been a lot of research dedicated to studying the corrosive effects that noxious employees (and boorish bosses) have on the work environments around them.

But, as economist Dylan Minor points out in a new paper, not many of these studies have focused on how much it costs companies -- in actual dollars and cents -- to keep these toxic workers around.

Minor and Michael Housman, chief analytics officer at Cornerstone OnDemand, sought to do just that in a new working paper from Harvard Business School.

The two explored a dataset of close to 60,000 workers across 11 different firms, with the goal of documenting the various aspects of workers' characteristics and circumstances that lead them to engage in "toxic" behavior in the workplace.

HREOnline.com recently spoke with Minor, a visiting assistant professor of business administration at HBS, to discuss the findings of his study, gain some further insight into just how costly it can be to carry caustic workers on one's payroll, and how employers and HR can spot insidious influences and root them out. The Q&A between the two follows:

A recent study you conducted with Michael Housman looked at the effects that "toxic" workers can have on their co-workers' productivity as well as their employers' bottom lines. How did you define "toxic" for the purposes of this research?

In this study, "toxic" behavior is defined as conduct that's harmful to an organization by harming its property or its people. I also chose the term "toxic" for this research because toxic workers' actions and attitudes tend to spill over and infect other workers.

The aforementioned study finds that a top 1 percent worker may return $5,303 in annual cost savings to a company through increased output, but avoiding hiring a "toxic" employee will save an estimated $12,489. How did you arrive at those figures?

That was one of the most surprising things we found in this study. We were trying to get a sense of the magnitude of a "superstar" relative to the average worker. The value of the superstar is that he or she is producing more work than the average person. So you have to pay them more, but their increased productivity should more than make up for this, which means increased net profit. I call the superstars the top 1 percent of employees. How much additional profit are they netting the firm over the course of a year? The answer we came to was $5,303. So that's the positive.

In contrast, toxic workers come with liabilities. Specifically, when a toxic worker arrives, people start leaving the company because they don't want to be around this toxic person. And this is a cost that's pretty easy to measure. The cost of turnover, which includes finding and training a new worker, is well-tracked by all 11 companies we studied. These figures allowed us to estimate the annual cost of a toxic worker, just through increased turnover, as more than $12,000 per annum.

I study HR management in general, and if you look at [talent management-related] studies out there, almost all of them are focused on how to find top performers -- the superstars -- and keep them. But what's so interesting, and what really struck me about this study, is that a toxic employee has a two-to-one effect over that of a superstar worker.

Your research identifies a few key predictors of which employees are more likely to be toxic. For example, toxic workers tend to show very high levels of self-regard or selfishness and overconfidence. How can managers and HR leaders spot those who may turn out to be poisonous influences within the workforce, and may be more likely to engage in dishonest or disruptive behavior?

If we're being polite, we can call them "self-regarding." But what that really means is "selfish," and people who are selfish are much more likely to be terminated for engaging in the toxic behavior we looked at in this study. They also tend to have poor customer-service skills, for example, and that applies to their interactions with co-workers as well.

The great thing is you can actually identify before you hire people -- or at least get a signal of -- how selfish they are. One way, for example, is looking at their involvement in activities outside the workplace. Are they involved in philanthropy? Another example would be if they have participated in any volunteer programs. Finally, within the workplace, a previous supervisor can comment on the extent to which a past employee was an above-average corporate citizen, and if [he or she] pitched in above and beyond what was required.

Another factor to consider is overconfidence. This can predict greater productivity, but if that's all you're looking at, then you're going to be hiring employees who are productive, but may also be toxic.

Something else we found -- and this was surprising -- was that those who professed to always follow the rules were more likely to be toxic. If [we're being] honest, there are times when breaking the rules is required to get the job done. For example, consider Germans harboring Jews in the face of the Nazis, or the birth of the United States. Thus, those who are most honest will agree that the rules do sometimes need to be broken. Whatever the case, the good news is there are several sets of questions designed by industrial psychologists that can identify these self-professed rule-followers.

Given that many acidic employees are also top performers, managers and companies may be more apt to tolerate their bad behavior rather than let them go. As your study shows, an employer does so at the risk of seeing other talented employees become less productive and perhaps even leave the organization entirely. While parting ways with a high-performing employee shouldn't be taken lightly, what can employers and, moreover, HR leaders, do to root out toxic workers?

The first thing we have to ask ourselves is, why do we have these toxic workers? The answer is, because they're very productive. The ones that aren't either aren't going to get hired or they'll quickly get fired. So the jerks who stick it out over the long-term are the ones who are very productive. There's a kind of survivorship bias at play here. And we get this cesspool of toxic workers, because you don't have managers who can close their eyes to [the destructive employee's] productivity and focus on his or her citizenship.

[Influential former GE CEO] Jack Welch, for example, put managers into one of four categories. He classified managers who are very productive and always hit their numbers, but didn't align with the firm's culture, as "Type 4." And he said, "we have to get rid of these people." And that's applicable to every level of the organization. So it's a matter of getting managers to move to a more multidimensional assessment of workers, both in hiring and in recognition, recognizing employees in ways where the reward is not just all about pure productivity, but about citizenship as well. These other dimensions beyond productivity are captured [by] what I call corporate citizenship, which means going above and beyond the call to be a "good" worker. This means [helping] others, even when not required.

To access the original article, click here.