The Iceberg Effect – A Case Study in the True Cost of a Toxic Employee

We have all worked with a toxic employee; someone who is so toxic in the workplace that they cause untold havoc. 
In some workplaces these events are caused by a combination of staffing personalities, yet in others it seems solely down to one individual.
Often employers suspect these individuals have a huge financial toll on an organisation, yet often this is extremely hard to quantify. How much do toxic employees lower productivity, cause lost customers and severely damage a company’s reputation?
The following case study reveals some unexpected results.
Six months ago my company came across one such toxic employee. The company they were working for was a professional business with 10 staff. After a thorough investigation, it soon became apparent this employee was toxic. We suspected they were probably costing the company at least $10,000 to $30,000 a year. They were paid out to leave the company.
Six months later the company’s revenue shot up by an astounding 50 percent. The only change was this employee leaving the company. This was hundreds of thousands of dollars in extra revenue.
Why did this happen? The obvious answer is the employee was stealing from the company. We found no evidence of this. So there were other forces at work.
The exact processes that led to the staggering increase in profits are unknown, but we strongly suspected the following happened.
Quite simply this person was a pain and managers and other employees dreaded coming to work. It’s easy to assume that when you dread coming to work you will not put much energy and enthusiasm into the business.
We believe that for the most part, instead of focussing on their jobs, gaining new clients and being innovative, most of the staff’s cognitive resources were occupied with avoiding and not upsetting this employee.
We believe this employee easily alienated customers and created bad word of mouth.
The company had to spend a lot on always gaining new customers, therefore the cost of customer acquisition were high. There may well be other factors but we believe these are the main ones.
All this amounted to hundreds of thousands in lost revenue for the company. Not all the results I see are this spectacular, normally I see a 10 to 30 percent improvement in revenue or productivity after a toxic employee leaves.
I do see these examples quite often. I had one recently where adding 50 percent extra staff resulted in zero percent productivity improvement. We put this mostly down to one staff member.
I can think of very few other things that a business owner can do that can increase revenue so dramatically. There were very few complaints about this person; most people said nothing, neither the staff nor the customers. Yet the managers had a quiet intuition that this person was a toxic influence on the workforce.
This is what I call the iceberg effect. Often if you have a toxic employee you will know about some of the trouble they are causing, but not all. Our original cost for this employee was $10,000 to $30,000. For a medium sized business this was a lot. We had no idea the true cost was many times this figure.
The lesson is that if you have a problem with a staff member it needs to be resolved one way or the other. The costs of a problem employee are exceptionally high, not to mention all the stress and anguish they cause.
Michael Hempseed is the managing director of Employee Solution Service.
Visit www.ess.org.nz.
 
By Michael Hempseed