Dr. Ryne Sherman, Chief Science Officer at Hogan Assessment Systems and co-host of the “Science of Personality” podcast, delivered a presentation on the impact of a toxic workplace and the hidden costs of toxic employees. The webinar highlighted how leadership and talent issues, particularly those related to problematic employees, are central challenges for organizations today.

The Pervasive Problem of “People Problems”

Sherman opened by sharing anecdotes from CEOs who reported spending a disproportionate amount of their time dealing with employee issues (e.g., a tech CEO spending 90% of their time on employee problems versus 10% on client issues). This sentiment is backed by data from the Center for Creative Leadership, which surveyed 48,000 leaders across 7,000 organizations. Their findings indicated that “other people issues” or people problems are the number one challenge faced by leaders today across all levels, from frontline supervisors to executives.

These “people problems” primarily fall into two categories:

1. Attracting Talent: Over 75% of global CEOs are concerned about finding enough talent to fill necessary roles.
2. Retaining and Engaging Talent: Leaders struggle to keep top talent motivated and engaged. Employee engagement is a critical predictor of turnover, absenteeism, and productivity. Gallup reports that one-third of global employees are actively disengaged, meaning they are actively disrupting business and causing problems. These talent issues are especially exacerbated in service-based industries (e.g., investment or consulting firms) where “the product is the people”.

Understanding the “Base Rate of Bad Employees”

While there’s extensive research on leadership failure (60-75% of leaders fail to create high-performing teams, a rate unchanged in 40 years), less data exists on the base rate of “bad employees”. Existing estimations vary: one-third are actively disengaged, Pareto’s 80/20 rule could suggest 80% are under-contributing, and the Society for Human Resource Management estimates around 10% of the workforce are toxic employees.

A crucial distinction often missed in research is between incompetent employees and toxic employees.

Incompetent Employees: The “Free Riders”

Incompetent employees are defined as workers who leave work for others to complete but don’t create additional work. Using a “coffee cup” analogy, they don’t drink their share, but they don’t add more coffee or spill it. A prime example is the “free rider” problem, common in group settings where some individuals benefit from others’ efforts without contributing equally. This phenomenon leads to disengagement among those who do contribute, as they feel less motivated to exert effort in subsequent rounds.

Hogan utilizes two performance models to assess competence:

1. General Employability: Focuses on people skills (getting along, building relationships), learning skills (adapting, quick learning), and work ethic (reliability, dependability). These three skills are highly predictive of performance across most jobs.
2. Job-Specific Profiles: Hogan has identified nine job families and created specific personality profiles that predict performance in those roles (e.g., managers, executives, customer support).

Based on these models, an analysis of 60,000 global job applicants revealed that almost 3% of employees had a “highly unemployable” profile, failing to pass a single one of Hogan’s ten employability or job-family profiles. This group represents the bare minimum base rate of incompetent employees, characterised by emotional erraticism, insubordination, and a lack of drive. Managing such employees requires highly specific instructions, constant reminders, and error correction, suggesting they are best placed in roles where performance is not critical.

Toxic Employees: The “Coffee Spillers”

Toxic employees, in contrast, are defined as people who create additional work or problems that need to be solved. In the coffee cup analogy, they pour more coffee into the cup, causing it to overflow and create spills that others must clean up. Toxic behaviours include bullying, harassment, micromanaging, dishonesty, manipulation, narcissistic behaviour, and causing threats or danger to others. These behaviours often overlap with “counterproductive workplace behaviours” like theft or inappropriate acts.

Hogan’s research suggests that toxic workers often combine lower emotional resilience and impulse control with a tendency to be socially dominant, attention-seeking, and sceptical of others. Unlike less capable workers, they may still be ambitious, but this energy can be directed in unproductive or even destructive ways, especially when combined with overconfidence or a willingness to take unnecessary risks.

Hogan’s research estimates that about 6% of the global working population possess numerous traits of a toxic employee.

The Astronomical Cost of Toxic Employees

Hiring a “bad” employee is incredibly costly. David Jones’s 25-year-old book, “The Million-Dollar Hire,” estimated that a $100,000 salary represents a $1 million investment when accounting for salary, benefits, training, overhead, and replacement costs.

More specifically, research by Houseman and Miner on 50,000 workers demonstrated that avoiding a toxic worker saves an organization $12.50 for every $1 invested. This is significantly more valuable than hiring a superstar, which yields between $1.95 to $4.88 for every $1 invested. In fact, it takes three to five superstars to offset the negative impact of just one toxic worker. Hogan’s analysis further revealed that while top performers generate 7-19% additional revenue beyond their compensation, toxic employees create an additional cost of 44% on their compensation. These costs are often hidden because toxic workers may also have strengths that management clings to, overlooking the disengagement and turnover they cause.

Scaled up, the cost of toxic employees is staggering:

• United States: Estimated at $286 billion annually.
• Australia: Estimated at $38.7 billion annually.
• Globally: Almost $1 trillion annually due to just 6% of the population.

Solutions: Assessment, Development, and Leadership

The solution to combatting toxic employees lies in a multi-faceted approach.

• Personality assessments are designed to measure enduring personality characteristics that predict a wide range of workplace behaviours and outcomes, including job performance and leadership style. Research shows that certain personality profiles can also be associated with counterproductive or disruptive behaviours when expressed in extreme ways. Using validated personality assessments early in the selection process helps organisations make better-informed hiring decisions and reduce the risk of problematic workplace behaviours, while maintaining fairness and predictive accuracy
• Coaching and Development: While toxic behaviour is difficult to “fix” due to the stability of personality, coaching can be effective for individuals who display only one or two toxic-related behaviours. The approach is to raise self-awareness and discuss desired impact to encourage behavioural change.
• Avoiding and Offboarding: The most effective strategy is to avoid hiring toxic workers. For existing toxic employees, offboarding is a valuable step that many managers miss due to the “brilliant jerk scenario” where perceived strengths (e.g., high sales numbers) overshadow the hidden costs.
• Leadership Responsibility: Leaders play a central role as they are responsible for hiring, supporting, and addressing toxic behaviours. Their actions and the culture they foster can either perpetuate or mitigate toxicity within the organization.

Key Takeaways

• Employee quality is the number one issue for leaders.
• Incompetence (3% bare minimum base rate) and toxicity (6% bare minimum base rate) are distinct problems; incompetent employees require backup, while toxic employees create additional work and problems.
• The economic cost of toxic employees is immense, reaching billions nationally and almost $1 trillion globally.
• High-quality assessments are the most effective tool to identify and combat toxic employees.

Click here to watch the recording of Dr. Ryne Sherman’s presentation.