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03 MARCH 2017
One bad apple spoils the company
by Matt Palmquist, strategy+business

Bottom Line: Don’t let the performance of superstars distract you from the damage toxic employees inflict.

Superstar employees get all the attention. Because the exemplary productivity of top performers has been shown to boost firm-wide profitability, companies make it a priority to recruit and retain them. Less scrutinised are the workers who may appear to be top contributors, but in reality are behaving badly or flouting regulations.

The negative actions of employees run the gamut from relatively minor indiscretions such as pilfering office supplies to serious transgressions like fraud or sexual harassment. Leaving aside the corporate costs associated with so-called toxic employees — including litigation and hiring replacements — their behaviour can take a toll on workplace morale, customer retention, and stakeholder attitudes. In fact, a new study suggests that avoiding or weeding out toxic employees can be much more valuable to firms than hiring or cultivating overachievers.

Working with a software development company, the authors constructed a novel data set, pinpointing several personality traits associated with toxic workers. The sample covered 11 B2B firms, 184 of their subsidiaries, and more than 58,500 workers, about 4.5 percent of whom were terminated for toxic behaviour.

The data included evaluations by an organisational psychologist about employees’ abilities and technical skills, as well as self-assessments that measured workers’ confidence and attitudes toward company policies. Reports on employees’ daily productivity, firm performance, and feedback from customers and clients were also considered.

Employees who were overconfident and self-involved, and who professed to follow the rules, were the most likely to turn toxic. But the particular danger of toxic workers is that their habits can spread. By examining data at the team level, the authors found that the higher the number of toxic colleagues surrounding a particular employee — even one not predisposed to bad behaviour — the more likely it was that the worker would follow a destructive path.

The authors also compared the savings associated with an employee whose productivity ranks in the top 1 percent of a firm’s output with the turnover costs incurred because of a toxic worker. Replacing a toxic employee with an average one generated twice the savings that replacing an average worker with a superstar did.

Complicating matters, toxic workers can appear much more productive than their colleagues. But this productivity reflects quantity, not quality. Although they complete tasks faster, toxic workers won’t improve firm-wide performance over the long haul because their bad behaviour counteracts any speed-related benefits they offer. Think of the way supervisors at an investment bank might not recognise a rogue trader while he or she is racking up profits — until it’s too late.

Indeed, the authors encourage managers to screen employees for the personality traits linked to toxicity and not lean so heavily on productivity- related assessments. Because when it comes to toxic employees, the bad ultimately outweighs the good.

Source: “Toxic Workers,” by Michael Housman (Cornerstone On-Demand) and Dylan Minor (Northwestern University), Nov. 2015, Harvard Business School Strategy Unit Working Paper No. 16-057

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